By the time you reach your 60s, most of your retirement planning is well underway. But there are still plenty of details to work out before you actually retire, including how your taxes will affect your plans.
More than 50% of current retirees admit that they didn't account for taxes in retirement while planning, according to a 2025 survey from the Nationwide Retirement Institute, and close to 60% say they wish they'd prepared better for retirement taxes. Here's how to avoid getting caught off guard by this expense.
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What taxes will you face in retirement?
Perhaps the best way to prepare for retirement taxes is to simply be aware of what taxes you'll face.
Taxes on retirement account withdrawals will depend on where you've invested your money. Roth account withdrawals are generally tax-free, as you've already paid taxes upfront on your contributions. But if you've invested in a 401(k) or traditional IRA, expect to pay income taxes on the amount you withdraw.
When it comes to state taxes, however, some states have exceptions for retirement income or don't tax income at all. There are sometimes certain requirements you'll need to meet to be exempt, so check your state's tax code to see whether you'll owe state income taxes on your retirement income.
What about Social Security benefits?
If you're receiving Social Security benefits, you could also owe state and federal income taxes on your monthly payments. Fortunately, 41 states don't tax benefits, so most retirees can already avoid state-level taxes.
Federal taxes on benefits, though, will depend on your provisional income -- which is half of your annual benefit amount plus your adjusted gross income and any nontaxable interest. If it's higher than $25,000 per year (or $32,000 per year for married couples filing jointly), you'll owe federal taxes on up to 85% of your benefit.
Taxes can be confusing at times, but a little planning can go a long way. By knowing what to expect, you can head into retirement as prepared as possible.
