Yes, there are taxes after retirement. Even though you are no longer working, that doesn’t necessarily mean the days of filing income tax are gone for good, although not everyone must pay income tax after age 70. Filing may prove worth it for some people because they may receive a tax refund.
Taxable and Non-Taxable Retirement Income
Whether or not you must pay taxes in retirement depends on your adjusted gross income. Your adjusted gross income determines your tax bracket. Whether the withdrawals you make from your retirement accounts are taxable or not depends on the type of account. Funds withdrawn from a traditional IRA or a 401(k) are taxable, since the money put into these accounts during your working life were tax-deferred. Funds withdrawn from a Roth IRA are not taxable, since the contributions were made with post-tax money. Once you reach the age of 70 ½, you must make withdrawals from taxable retirement accounts. You don’t have to ever make withdrawals from a Roth IRA. The income from non-retirement accounts, such as money market accounts, certificate of deposits, mutual funds and stocks is taxable. While income from tax-exempt bonds or bond funds is not subject to tax, you must pay taxes on the income from taxable bonds or bond funds. The IRS recommends diversifying your retirement portfolio and limiting amounts withdrawn from various accounts to lower your taxable income.
Social Security Taxes
If your only source of retirement income is Social Security, you may not have to pay taxes or file an income tax return. If you receive only Social Security or railroad retirement tier 1 benefits or have limited other income, use the IRS interview to determine whether you must file a federal income tax return.
Filing Taxes While on Medicaid
Seniors going into nursing homes may want to spend down their assets until they qualify for Medicaid. To qualify for Medicaid, an individual must meet the income and asset guidelines used by their particular state. Most states use federal poverty guidelines for determining Medicaid eligibility, but that is not true of every state. In Texas in 2018, for example, a single person may be eligible for Medicaid if their assets do not exceed $2,000 and their monthly income does not exceed $2,250. If the person is married and their spouse is not applying for Medicaid, the income limit remains the same, but the applicant can have assets of $2,000 and the spouse may keep assets worth up to $123,000. If both spouses need nursing home care, the monthly Medicaid income limit is $4,500 and assets cannot exceed $3,000. When only one spouse is affected, it is possible the income limits are high enough to require filing a federal income tax return.
The Standard Deduction
Under the Tax Cuts and Jobs Act, signed into law on Dec, 22, 2017, the standard deduction was raised to $12,000 for individuals and $24,000 for married couples filing jointly. Retirees with income below that amount do not have to file income taxes.
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