Retirement tax planning

Which retirement income is taxable?

Withdrawals from traditional IRAs and pretax workplace plans are generally ordinary income. A portion of Social Security may be taxable. Qualified Roth withdrawals are generally tax-free.

Capital gains in taxable brokerage accounts follow capital-gain rules, which are separate from ordinary retirement-account withdrawals.

RetirementNeuron’s tax layer estimates federal tax from the income types in the scenario and the rule year selected. It is not a tax return.

What is an RMD?

A required minimum distribution is the minimum amount the IRS says must come out of many traditional retirement accounts once the owner reaches the applicable age.

SECURE 2.0 changed that starting age for many birth years. The applicable age depends on the rule set for that person, not a single number for every household.

RetirementNeuron applies the rule year in the plan. The educational RMD calculator is a separate illustration using published divisors.

Why does withdrawal order matter?

The account you draw from changes taxable income, future required distributions, and sometimes Medicare premiums.

There is no universal best order. A household that needs to manage a tax bracket may draw differently from a household that needs cash and has little pretax savings.

Scenario comparisons keep the tax estimate next to the income estimate so the two are not described as the same number.

Questions

Sources

• IRS — required minimum distributions
• IRS — Roth IRAs

Related

• Roth conversions
• RMD illustration
• Pretax and Roth contribution illustration
• Tax modeling