Income from common retirement sources such as annuities, pensions, Social Security and tax-deferred accounts is subject to different taxation rates, explains Kiplinger. Some of these incomes are taxed as ordinary income, but others sources are tax-free or subject to a lower tax rate.Continue Reading
Taxes on retirement income that comes from Social Security are dependent on the taxpayer's provisional income, which is her adjusted gross income plus 50 percent of her benefits and tax-free interest obtained during the tax year, reports Kiplinger. Taxes are also dependent on the taxpayer's filing status.
Tax-deferred accounts, such as an IRA or 401(k), are taxed as ordinary income, according to Wells Fargo. Private pensions and government payments are also taxed as ordinary income, with the assumption that the plans were free of any after-tax contributions.
Profits from taxable assets such as stocks, bonds, mutual funds and real estate are subject to the capital gains tax, says Wells Fargo. The tax rate depends on how long the securities are held. Assets held for one year are taxed as ordinary income, and assets held for longer than one year are taxed between zero and 15 percent, depending on the taxpayer's tax bracket. Annuity-driven income is taxed beyond the principal amount.Learn more about Financial Planning