How to Determine Your Tax Bracket at Retirement

The important consideration in retirement is not how much you have, but how much you can spend.

When it comes to managing your retirement income it's not how much you have, it's how much you can spend. Understanding your tax bracket at retirement will help you determine how much you can spend in retirement from your retirement income stream. Tax brackets in the United States range from 10 percent to 35 percent. Knowing how to manage your taxes in retirement can help you maximize your total spendable retirement income.

Instructions

1. Determine how much of your income is subject to income tax. Some forms of retirement income are subject to income tax, such as pension plans, 401(k) plan proceeds and income from IRAs. Other retirement income streams, such as income from Roth IRAs or from permanent life insurance policies, are not taxable as income.

2. Factor in Social Security. In many circumstances, Social Security income is taxable if your total income rises above certain levels. Typically, the income is potentially taxable if your total income rises above $32,000 if married filing jointly, or $25,000 if single, but these levels may change over time. Check the IRS regulations for the current taxation thresholds -- known as the "base level" -- and compare it with your combined incomes from Social Security and from other sources. If your total income exceeds the base income level, you may have to pay taxes on at least some of your Social Security income.

3. Locate your total taxable income on the tax table and find the corresponding tax rate. Every year the IRS publishes tax tables. These tables can and will vary from time to time as Congress changes the tax laws.

Tips & Warnings

• It is prudent to do tax planning and prepare for retirement income taxation, but be advised that tax rates and tables can and will change over time.

References

• MoneyChimp.com: IRS Tax Bracket Calculator
• IRS.gov: Social Security Taxation Regulations