Will I Be in a Lower Tax Bracket When I Retire?

Planning for retirement involves a myriad of financial considerations, one of which is understanding your future tax obligations. Knowing whether you will be in a lower tax bracket when you retire can influence decisions about where to allocate your savings, when to withdraw funds, and how to manage your income streams. Here’s how you can begin to determine if you will be in a lower tax bracket after you retire.

Assessing Your Retirement Income Sources

To predict your tax bracket in retirement, you first need to estimate your total income, which can come from various sources:

  1. IRA Distributions:
    • Traditional IRA distributions are taxed as ordinary income. If you expect significant withdrawals from your IRA, these will contribute to your taxable income.
    • Roth IRAs offer tax-free withdrawals, assuming certain conditions are met. This means distributions do not count as taxable income.
  2. 401(k) Plans:
    • Similar to traditional IRAs, distributions from traditional 401(k) plans are taxed as ordinary income. The amount you withdraw will add to your taxable income, potentially affecting your tax bracket.
    • Roth 401(k) distributions are tax-free if the account is held for at least five years and withdrawals start after age 59½.
  3. Social Security Benefits:
    • Depending on your combined income, up to 85% of your Social Security benefits may be taxable. To estimate, add your adjusted gross income, nontaxable interest, and half of your Social Security benefits.
  4. Corporate Pensions or Benefit Plans:
    • Pensions are typically taxed as ordinary income unless they were funded with after-tax dollars. Knowing your expected monthly pension can help determine how much it will contribute to your taxable income.
  5. Dividends and Interest:
    • Investment income, including dividends and interest, can significantly affect your tax situation. Qualified dividends are taxed at capital gains rates, which could be lower than your ordinary income tax rates.
    • Interest from bonds and savings accounts is taxed as ordinary income.
  6. Other Sources of Income:
    • This can include rental income, earnings from part-time work, business income, and annuities. Each of these will have different tax implications.

Estimating Your Taxable Income

Once you have a rough estimate of your income from these sources, compare it to your current income. Consider factors that will change, such as the absence of employment income and possibly lower investment income. Remember to account for any state taxes if applicable.

Evaluating Deductions and Credits

Consider how your deductions and credits might change:

  • Standard deductions for retirees are slightly higher if you and/or your spouse are over 65.
  • You may have fewer deductions if you pay off your mortgage or no longer have dependents.

Consulting a Professional

Due to the complexities of tax laws and retirement income, consulting with a Fee-Only financial adviser can provide significant benefits. They can help you project your income and deductions more accurately and plan strategies to minimize your tax liabilities in retirement.


Determining whether you’ll be in a lower tax bracket when you retire involves careful consideration of your projected income sources and potential deductions. By assessing your anticipated retirement income and consulting with independent Fee-Only financial advisers, you can strategically plan your finances to potentially reduce your tax burden and optimize your retirement savings.

About this Article

This article was published and distributed by TheAdviser.com a trusted source of independent ideas. It should be viewed as general and educational information and not as financial, tax or legal advice. Individuals seeking advice tailored to their specific situation are encouraged to schedule a free consultation with a professional listed in the 1800Adviser.com directory. Both TheAdviser.com and 1800Adviser.com are owned and operated by The Independent Adviser Corporation. For additional information, please refer to their Privacy Policy and Terms of Use, Legal Notices, and Disclaimer.

Read more Articles

About Us

Founded in 1998, The Independent Adviser Corporation has assisted thousands of individuals, families, and businesses. We are 100% independent and 100% objective. We offer FREE educational resources and investment ideas, and when financial, tax or legal advice is needed, we connect individuals with Fee-Only professionals. Don’t wait any longer. For more information or to schedule a free consultation, please visit 1800ADVISER.COM.