Retirement is an exciting time.  You worked hard your entire life to be able to focus on family, travel, and hobbies.  But just because work stops doesn’t mean taxes stop too.  Whether you’re retiring now or simply thinking about it, here are some things you should know about taxes and retirement.

To tax now or later?

As you choose your retirement vehicles, you’ll find you have options as to when you pay the taxes. Some contributions are made with after-tax dollars and provide no immediate tax benefit. When the time comes for you to draw down from these accounts, your distributions are tax-free. Other vehicles tax distributions as regular income or, in some cases, as capital gains. Your CPA will help you plan strategies for choosing your vehicles and for which to begin drawing down first.

What are some of my options?

Roth IRA

A Roth IRA (Individual Retirement Account) is a special account that allows tax-free growth and tax-free distributions once you’ve reached the appropriate retirement age, assuming you’ve held the account for at least five years. You make contributions with funds you’ve already paid taxes on. Deposits are limited to $5,500 annually or $6,500 if you’re over age 50.

Roth IRA contributions are subject to income limitations, meaning some people earn too much money to qualify. Your CPA can help you determine if you qualify and can also help you convert a traditional IRA to a Roth IRA if this is a good strategy for you.

Traditional IRA

A Traditional IRA may provide an income tax deduction when the contribution is made. The distributions are generally subject to normal income taxes. By April 1 of the year following the year in which you turn 70½, you must take a required minimum distribution (RMD). Each subsequent year will require you to take the RMD by Dec. 31.

This amount is based on your account balance and your life expectancy. Your tax exposure will vary according to your circumstances, including whether you choose to withdraw more than the RMD annually.

In these cases, you’ll be taxed according to your regular income bracket.

Stocks and traditional investments

Stocks and other traditional investments don’t tax any differently in retirement than they do in your working years. If your investments offer dividends that pay periodically, these are treated as investment income that may be eligible for a preferred rate. Otherwise, they’ll be taxed as income, potentially subject to ordinary rates.


If you sell securities, they’ll be taxed as capital gains if they’ve increased in value. Exceeding certain thresholds exposes investors to an additional 3.8% tax above regular capital gains. Similarly, you may be able to write losses off — this could be a useful strategy depending on your situation. Your CPA can help you decide.

Selling your home

Selling your home in retirement is common. Many retired people find their current home is too large, lacks necessary features or isn’t laid out to accommodate their mobility needs. Others find they can sell their current home for more than a suitable replacement home will cost, providing them with extra income in their retirement. While your CPA will help review your needs and make suggestions, there are a few items to keep in mind when considering selling your home.

  • Is it your primary residence?
  • If selling a primary residence, have you lived in the home for more than two of the five years before your sale?
  • Additionally, have you owned the home for two of the past five years?
    • Did you sell another property within the past two years for which you claimed a capital gains exclusion?

Answers to these questions and others will help your CPA determine if you’ll be exposed to any taxes when selling your home. In general, single individuals may exclude up to $250,000 gain on sale of a primary qualifying residence, while married couples filing jointly may exclude up to a $500,000 gain.


For 2018, you may give any person up to $15,000 annually without tax consequences. The $15,000 exclusion is per person, so if you’re married, both you and your spouse can each give the same person $15,000 in any one year. The lifetime estate and gift tax exemption is $11.18 million per person. Any gift transfers between spouses are always tax-free.

Gifts to anyone other than your spouse that exceed the $15,000 annual limit will reduce the $11.18 million estate exclusion rather than being taxed currently. This means that, for the vast majority of gifts, you’ll never owe any actual tax. However, if your gift’s value to a single recipient who isn’t your spouse exceeds 15,000 for a single year, you’ll be required to file a gift tax return.

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Do you have questions about starting your retirement right? Maybe we can help! Reach out to us online or call 480-897-2300 today.