Taxes on Retirement Income 2026: Social Security, 401k, Pension Tax Guide

Retirement income isn’t tax-free income — it’s often just differently taxed income. Understanding the rules before you retire can save tens of thousands over a multi-decade retirement.

Sources of Retirement Income and How Each Is Taxed

Income Source	Federal Tax Treatment	State Tax Treatment
Social Security	0%-85% taxable (based on combined income)	Varies: 37 states exempt, 13 states tax
Traditional 401k / IRA withdrawals	100% ordinary income	Most states tax
Roth 401k / Roth IRA withdrawals	Tax-free (qualified distributions)	Tax-free in most states
Pension income	100% ordinary income	Most states tax
Dividends (qualified)	0%-20% capital gains rate	Varies by state
Capital gains (long-term)	0%-20% rate	Varies by state
Annuity payments	Partially ordinary income	Varies
Part-time work / wages	100% ordinary income	Normal state income tax

Social Security Taxation: The Threshold System

The IRS uses “combined income” = AGI + non-taxable interest + 50% of Social Security benefit.

Combined Income (Single)	% of SS That May Be Taxable
Under $25,000	0%
$25,000-$34,000	Up to 50%
Over $34,000	Up to 85%

Combined Income (Married Filing Jointly)	% of SS That May Be Taxable
Under $32,000	0%
$32,000-$44,000	Up to 50%
Over $44,000	Up to 85%

Note: “Up to 85%” means 85% of your benefit is included in taxable income, not that you pay 85% tax on it. A retiree in the 12% bracket with 85% of SS taxable pays 12% on that 85%.

States That Don’t Tax Social Security (2026)

37 states exempt Social Security from state income tax, including:

• Texas, Florida, Nevada, Washington (no income tax at all)
• California, New York, Georgia, Michigan, and many others specifically exempt SS

States that do tax Social Security (partially or fully): Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, West Virginia. (Rules vary — most have income thresholds.)

Traditional 401k / IRA Withdrawal Tax

Every dollar you withdraw from a traditional (pre-tax) 401k or IRA is taxed as ordinary income. In 2026:

Withdrawal Amount (Single, standard deduction)	Approximate Tax Owed
$20,000	~$0 (below standard deduction)
$40,000	~$2,960 (12% bracket after deduction)
$60,000	~$6,362
$80,000	~$10,294
$100,000	~$15,294

The 2026 standard deduction for those 65+ is approximately $16,550 (single) — retirees effectively get a slightly larger deduction than working-age filers.

Required Minimum Distributions (RMDs)

Starting at age 73, the IRS requires annual withdrawals from traditional accounts:

Account Balance at 72	IRS Divisor (age 73)	First RMD
$200,000	26.5	~$7,547
$500,000	26.5	~$18,868
$1,000,000	26.5	~$37,736
$2,000,000	26.5	~$75,472

Large RMDs can push retirees into higher brackets, trigger Social Security taxation, and affect Medicare premiums (IRMAA surcharge triggers above $106,000 MAGI single in 2026). Planning distributions before age 73 — especially via Roth conversions — is a key strategy.

Real Example: $50,000 Total Retirement Income

A retiree receiving:

• $18,000 Social Security benefit
• $22,000 traditional IRA withdrawal
• $10,000 part-time income

Tax calculation:

Step	Calculation
Combined income for SS test	$22,000 IRA + $10,000 wages + $9,000 (50% of SS) = $41,000
SS above $34k threshold → 85% taxable	85% × $18,000 = $15,300 included in income
Total taxable income before deduction	$22,000 + $10,000 + $15,300 = $47,300
Standard deduction (65+, single)	-$16,550
Taxable income	~$30,750
Federal tax owed	~$3,290 (10% + 12%)
Effective rate on $50k gross income	~6.6%

A retiree on $50,000 of mixed income pays roughly $3,000-$3,500 in federal income tax — an effective rate of approximately 6-7%. Much lower than working years.

Pension Income

Pension payments from private employers and most government pensions are fully taxable as ordinary income. Federal government pension (CSRS) is fully taxable; military pensions are fully taxable federally. Some states offer partial pension exclusions for government pensions or pensions above a certain age.

Roth Advantage: Tax-Free Withdrawals

Roth IRA and Roth 401k qualified distributions are completely tax-free:

• Account must be at least 5 years old
• You must be 59½ or older (for earnings)
• No RMDs from Roth IRA during owner’s lifetime

Roth conversion strategy: Convert traditional IRA funds to Roth during low-income years (ages 60-72, before Social Security or RMDs begin) to reduce future RMD burden and pay taxes at lower current rates.

Key Takeaways

• Social Security: up to 85% taxable if combined income exceeds $34k (single)
• Traditional 401k/IRA: taxed as 100% ordinary income when withdrawn
• Roth IRA: tax-free in retirement; no RMDs during owner’s lifetime
• RMDs start at 73 — large balances can force high-bracket withdrawals
• A retiree on $50k mixed income pays roughly 6-7% effective federal rate
• 37 states don’t tax Social Security
• Roth conversions in early retirement (pre-RMD years) can significantly reduce lifetime tax

Estimate your retirement take-home by income source: Paycheck Calculator

See what high earners pay in taxes before retirement: High Income Taxes 2026