6 Things for Seniors to Consider About Income Taxes
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Now that you’re retired, or are thinking about retiring, your tax burden won’t disappear — but it is likely to change. How will working part time impact your taxes? What are the tax implications of receiving Social Security or taking money from your IRA?

How will working part time impact your taxes? What are the tax implications of receiving Social Security or taking money from your IRA? If you're providing freelance services or consulting, you may also need to plan for self-employment taxes. AJ Smith, Vice President of Content Strategy and Financial Education for SmartAsset addresses these questions and others.

How Does Part-time Work Impact Income Taxes?

"If you continue working in retirement and are collecting Social Security benefits, depending on your retirement age and income, you may have to pay federal income tax on Social Security benefits above a certain threshold," Smith says. That's in addition to the taxes paid on income earned from part-time work.

One way to counteract this is to delay receiving Social Security benefits by a few years, until you're ready to stop or significantly reduce working. The Social Security Administration allows you to start receiving benefits as early as age 62 or as late as age 70. Monthly benefit amounts differ substantially based on your retirement age. Generally, you can receive lower monthly payments for a longer period of time or higher monthly payments over a shorter period of time.

How Is a Distribution from an IRA Taxed?

The tax consequences of a distribution from an IRA depend on whether it is a traditional IRA or a Roth IRA.

A distribution from a traditional IRA generally is subject to income tax based on your ordinary income tax rate, and if taken after you reach age 59½, it is not subject to the 10 percent early withdrawal penalty. However, if any of the funds in the traditional IRA were already taxed (for example, the funds consist of nondeductible contributions or after-tax funds rolled over from an employer-sponsored retirement plan), only the amounts not previously taxed will be subject to tax (deductible contributions and earnings).

A distribution from a Roth IRA generally is not subject to income tax if certain conditions are met. While the portion of the distribution that consists of contributions to the Roth IRA is never taxable (because the funds have already been taxed), the earnings also can avoid being taxed if the distribution is paid after you reach age 59½  and five taxable years have passed since you first established any Roth IRA.

How Is a Distribution from an Employer-Sponsored Retirement Plan Taxed?

Like a distribution from a traditional IRA, a distribution from an employer-sponsored retirement plan generally is subject to income tax based on your ordinary income tax rate, and if it is taken after you reach age 59½, it is not subject to the 10 percent early withdrawal penalty.

What State Income Tax Will You Pay?

If you relocate to a warmer climate — or any other state for that matter — it's important to first check your new state's tax laws, as tax laws differ in each state. Here are a few questions to research:

  • Does your new state tax Social Security benefits?
  • Does it tax pensions?
  • Does it have sales tax? If so, does it tax food or clothing?

There are also property and inheritance taxes to consider, especially if you'll be living on a fixed income. Inheritance taxes are imposed by the state — though not all states have them — and they have to be paid by the beneficiaries. Property taxes are implemented by states and municipalities but can vary widely. Understand all state and local taxes to avoid potential surprises.

How Might You Be Impacted by the Income Tax Credit for the Elderly or the Disabled?

Some retirees, particularly those with disabilities or those with lower income, may be eligible for the Tax Credit for the Elderly or the Disabled. Eligibility depends on age, filing status, and income. Seniors can also file for a higher standard deduction amount, which can be beneficial if you don't plan to itemize deductions on your federal income tax forms.

What Is the Tax Impact of a Reverse Mortgage?

If you own your home and choose a reverse mortgage that provides for a guaranteed monthly sum for as long as you're living in your home, you'll still be responsible for paying property taxes. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable, but make sure you understand the fees and costs that you'll pay.

For a quick-reference list of these tax tips and more, view our senior tax checklist. And for more information on taxes in retirement, visit the Regions Tax Center.

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This information is general in nature and is provided for educational purposes only. Regions makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented. Information provided should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Regions encourages you to consult a professional for advice applicable to your specific situation.