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David P. McCabe,
WMCP®, ChFC®, CLU®
Financial Planner
Nathaniel D. High, RICP®
Financial Planner
Nicholas J. Over, CFP®
Financial Planner
Sara E. Martin
Operations Manager
Jennifer A. McCabe
Client Service Specialist
jennifer.mccabe@prudential.com
Centuria Financial Group
2333 Baltimore Blvd Suite B
Finksburg, MD 21048
Phone: 443-952-7232
January/February 2023
Tax Treatment Varies with Income Sources
Taxation of retirement income is not a one-size-fits-all proposition. How your retirement income is taxed depends on where it comes from and, in some cases, the total amount of income you receive. Knowing how each type of income is taxed can help you and your tax professional plan and potentially minimize the amount you owe.
Social Security Benefits
You may be surprised to learn that a portion of your Social Security benefit will be taxed if your earnings exceed a certain amount. Fifty percent of your benefit is taxable with combined income of $25,000-$34,000 for single filers and $32,000-$44,000 for joint filers. Eighty-five percent of your benefit is taxable once income exceeds $34,000 and $44,000, respectively.Retirement Plan Distributions
Generally, contributions to 401(k), 403(b), 457 or other tax-deferred retirement plans are made with pretax dollars. Once you begin taking withdrawals, you’ll pay taxes on contributions and earnings at your regular income tax rate.One exception is a Roth IRA. Contributions to a Roth are made with after-tax dollars. Withdrawals of principal and earnings are tax free once certain conditions are met.
Pension Income
Most accounts are funded with pretax dollars, so annual income is taxed as ordinary income. However, if any portion of the pension was funded with after-tax money, that portion won’t be taxable.Investment Income
You’ll pay taxes at your regular income tax rate on: interest from maturing certificates of deposit (CDs); checking and savings accounts; money market accounts; corporate bonds; U.S. Treasury bonds; dividends from credit union and similar accounts; annuity earnings; and short-term capital gains on investments held for one year or less.Most qualified dividend income and long-term capital gains on investments held longer than one year are taxed at rates ranging from 0% to 20%, depending on your income.
Municipal bond interest is exempt from federal, and sometimes state, income tax.
Don’t Go It Alone
Your income during retirement will likely come from a variety of sources with different tax treatments. Your financial and tax professionals can help you navigate the maze of the information you’ll need to file your tax return.1052405-00003-00
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David P. McCabe, Nathaniel D. High, and Nicholas J. Over are Financial Planners with, and offer securities and investment advisory service through LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA/SIPC, and an affiliate of LPL Financial.
LPLE and LPL Financial are not affiliated with Centuria Financial Group.
This newsletter is general educational information provided by a Prudential Financial Professional and is not intended to market or sell any specific products and services, but rather provide general information about the subject matter covered only.
Centuria Financial Group and LTM Marketing Specialists LLC are unrelated companies. This publication was prepared for the publication’s provider by LTM Client Marketing, an unrelated third party. Articles are not written or produced by the named representative.
The information and opinions contained in this web site are obtained from sources believed to be reliable, but their accuracy cannot be guaranteed. The publishers assume no responsibility for errors and omissions or for any damages resulting from the use of the published information. This web site is published with the understanding that it does not render legal, accounting, financial, or other professional advice. Whole or partial reproduction of this web site is forbidden without the written permission of the publisher.