11 Income Sources That Are Taxable in Retirement

Taxes are unavoidable, during both our working years and retirement. If you're about to leave the workforce, it's important to prepare for the taxes you might face during your senior years. Here are some popular income sources that the IRS gets a piece of.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Many seniors are shocked to learn that Social Security income is taxable. Not only do 13 states impose taxes on benefits, but federal taxes apply to seniors with a moderate income or higher. That said, if your only retirement income source is Social Security, you can generally avoid having your benefits taxed.

ALSO READ: Grow Your IRA to $1 Million With These 3 Moves

Saving in a traditional 401(k) plan can lower your tax bill throughout your career. But during retirement, the distributions you take are subject to taxes. And once you reach age 72, you'll be required to take some withdrawals from your savings, which will create an automatic tax liability for you.

]Though Roth IRA withdrawals can be enjoyed tax free, traditional IRA withdrawals are taxable the same way taxes apply to 401(k) withdrawals. And the same rules apply for required minimum distributions, too.

Once you turn 65, you can remove money from a health savings account for any reason and avoid penalties. But withdrawals taken for nonmedical expenses will be subject to taxes. If you withdraw funds to pay for healthcare expenses, those won't be taxed.

ALSO READ: 3 Ways to Effortlessly Boost Retirement Savings Without Downgrading Your Lifestyle

You may have investments in a traditional brokerage account during retirement. If you sell any at a profit, you'll pay capital gains taxes, the extent of which will hinge on how long you held your assets before selling them. Investments held for at least a year and a day get taxed at a much lower rate than those subject to short-term capital gains.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

If you collect a pension during retirement, in most cases, that income will be taxed. There may be some exceptions, though, depending on the type of pension you have.

Bonds are a suitable retirement investment because they're fairly stable -- their value doesn't swing as wildly as stock values. The interest they pay can also serve as a nice, predictable income stream. But that interest is also considered taxable.

ALSO READ: Nearing Retirement? These Stocks Will Pay You for Life

It's a good idea to keep some money in a regular savings account during retirement, and you may decide to put some cash into a certificate of deposit as well. The interest you earn in those accounts is subject to taxes.

Like bond interest, dividends can serve as a nice supplemental retirement income stream. And while qualified dividends are generally taxed at a more favorable rate, those payments are taxed nonetheless.

Seniors are often advised to hold municipal bonds in retirement because the interest they pay is always exempt from federal taxes, and sometimes, state taxes as well. But if you sell municipal bonds at a profit, you'll pay taxes on your gains.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

The income you receive from an annuity purchased and held outside of a retirement plan is generally subject to taxes. But those taxes only apply to the gains portion of your annuity. If you purchase an annuity for $100,000 that becomes worth $250,000, you'll only pay taxes on your $150,000 in gains.

ALSO READ: Planning to Work in Retirement? Prepare for This Sneaky Tax Surprise

The more you read up on taxes in retirement, the more steps you can take to prepare. Be aware that many common retirement income sources are taxable, and factor that into your financial planning so you're not thrown for a loop.

The Motley Fool has a disclosure policy.