The Three Retirement Tax Issues I Nag My Clients About

A retired couple look over their taxes together at their kitchen island.

(Image credit: Getty Images)

Taxes are complex and often overlooked, but understanding how they work can help you maximize your income while minimizing your tax burden in retirement.

Everyone will owe taxes in retirement, but that doesn’t mean you can’t have a solid plan for how much you will need to pay.

As you finalize your retirement plan, there are a few tax planning issues you need to keep in mind.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

1. Taxes on income in retirement

In retirement, your income will likely come from a variety of different sources, such as Social Security, 401(k)s or IRAs. Many retirees are surprised to find out they must pay taxes on part of the Social Security income benefits they receive.

The amount you pay will depend on a few factors: how much overall retirement income you and your spouse receive and whether you are filing separately or jointly.

Typically, the higher your income, the more you will pay in taxes. This could be between 50% and 85% of your Social Security benefits.

When you withdraw from your traditional 401(k) or similar retirement accounts, you will pay taxes on the amount withdrawn like regular income. This is because these accounts are funded with pre-tax dollars, so you’re paying on the distributions.

If you withdraw from your 401(k) before the age of 59 ½, you could face a 10% withdrawal penalty in addition to the regular income tax.

There are many benefits to putting your money into a Roth (IRA). One of the biggest is that any contributions to a Roth IRA are made with after-tax dollars.

This means you are paying any taxes upfront. Unlike traditional IRAs, you do not receive an initial tax benefit, but you will see the benefits when you enter retirement and your qualified withdrawals are tax-free.

This is a great option if you are looking to minimize your taxes in the long term.

2. Taxes on gifts

As you think about your retirement and beyond, you may consider giving some of your assets to family members.

However, before gifting any amount of money, make sure you understand the rules about gift taxes to make the most of what you give.

The IRS defines a gift as a property transfer where no equal value is received in return. In 2025, individuals can give up to $19,000 every year without needing to file a gift tax return. For married couples, that number doubles to $38,000.

Any donations above those amounts have to be reported. However, just because they are reported doesn’t mean you have to pay taxes on them. What you report simply counts against your lifetime exclusion amount.

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If gifting in retirement is on your bucket list, be cautious. You don’t want to set yourself back financially and you don’t want to end up giving yourself or the receiver an unnecessary tax burden.

3. Property taxes

Most retirees are aware of the taxes on their retirement accounts, but many forget that even if your home is paid off, you will still have to continue paying property taxes after you retire.

This can be one of the biggest tax burdens for retirees because your property taxes are based on the value of your home, which could increase over the years.

Also, where you live will determine if you are taxed on retirement income. Thirteen states will not tax your retirement income, making them a friendly destination for retirees.

Taxes need to be a part of everyone’s retirement plan. Don’t wait to make tax planning a priority. The sooner you plan, the more tax-efficient your retirement will be.

Consider meeting with a financial professional who can help you evaluate your finances and create a tax plan to fit your individual needs.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Robert Cannon has more than three decades of experience working with investors, businesses and hedge funds across the United States. He focuses on creating lifetime income plans for retirement. Robert guides his clients through a specific wealth management process that is designed for financially successful individuals, couples and families.