Retirement income guide
Retirement taxes and RMDs: what to plan for
Retirement doesn't end your tax bill. It changes where the bill comes from. Knowing how each source of income is taxed, and when the IRS requires withdrawals, lets you plan the order you take money out.
By Dan Huslin, licensed insurance agent · Updated October 2026
How each kind of income is taxed
| Source | How it's taxed |
|---|---|
| Traditional 401(k) and IRA withdrawals | Ordinary income |
| Roth IRA and Roth 401(k) withdrawals | Tax-free, if the account is at least 5 years old and you're 59½ or older |
| Social Security | Up to 85% taxable, depending on your other income |
| Brokerage account | Capital gains rates on gains when you sell, plus tax on dividends and interest |
| Annuity outside an IRA | Gains taxed as ordinary income when withdrawn; your original deposit comes back tax-free |
| Pension | Generally ordinary income |
Required minimum distributions
The IRS requires you to start withdrawing from traditional IRAs and 401(k)s at a set age:
- Age 73 if you were born from 1951 through 1959.
- Age 75 if you were born in 1960 or later.
You can delay your first RMD until April 1 of the following year, but then you take two in one year, which can push you into a higher bracket. Missing an RMD costs a 25% penalty on the amount you should have taken, reduced to 10% if you correct it promptly.
Roth IRAs have no RMDs for the original owner, and since 2024 neither do Roth 401(k)s.
The Medicare surcharge most people miss
Medicare Part B and Part D premiums rise once your income passes certain levels. The surcharge, called IRMAA, is based on your tax return from two years earlier. A large IRA withdrawal or Roth conversion at 63 can raise your Medicare premiums at 65.
Planning moves to discuss with your tax professional
- Spread withdrawals out rather than taking large amounts in a single year.
- Consider Roth conversions in lower-income years, often between retirement and the start of RMDs or Social Security.
- Use qualified charitable distributions from an IRA once you're 70½. They count toward your RMD and aren't taxed.
- Set up withholding on IRA withdrawals and Social Security, or make quarterly estimated payments, to avoid underpayment penalties.
- Look at a QLAC. A qualifying longevity annuity contract lets you move part of an IRA, up to an IRS dollar limit ($210,000 for 2025), into an annuity that can start paying as late as 85. That amount is left out of your RMD calculation until then.
This guide is general information, not tax advice. Tax rules change; confirm the details with a tax professional.