How Is Retirement Income Taxed? Federal, State, and RMD Rules

Most retirement income is taxed as ordinary income at federal rates ranging from 10% to 37%, but how much of it actually gets taxed depends on where the money comes from. Traditional 401(k) and IRA withdrawals are fully taxable, pension checks are usually fully taxable, Social Security is only partly taxable above certain income levels, and qualified Roth distributions come out tax-free. For 2026, the standard deduction shields the first $16,100 of income for single filers and $32,200 for married couples filing jointly, with an additional deduction for filers 65 and older.¹

Federal Tax Brackets on Ordinary Retirement Income

Pensions, traditional IRA withdrawals, and 401(k) distributions all land on your return as ordinary income, taxed at the same rates that apply to wages. The 2026 federal brackets:

10%: Up to $12,400 (single) or $24,800 (married filing jointly)
12%: $12,401–$50,400 (single) or $24,801–$100,800 (joint)
22%: $50,401–$105,700 (single) or $100,801–$211,400 (joint)
24%: $105,701–$201,775 (single) or $211,401–$403,550 (joint)
32%: $201,776–$256,225 (single) or $403,551–$512,450 (joint)
35%: $256,226–$640,600 (single) or $512,451–$768,700 (joint)
37%: Over $640,600 (single) or over $768,700 (joint)

Because the brackets are progressive, only the slice of income falling inside each range is taxed at that rate. A single retiree with $60,000 in gross retirement income subtracts the $16,100 standard deduction, leaving $43,900 in taxable income. The first $12,400 is taxed at 10%, and the rest at 12%. The 22% bracket never comes into play, so the effective rate ends up well below the marginal one.¹

Traditional IRA and 401(k) Withdrawals

Money coming out of a traditional IRA or traditional 401(k) is taxed as ordinary income because the contributions went in before tax. The tax was deferred, not forgiven. Every dollar you withdraw, including all the investment growth, gets added to that year’s taxable income.²

If you made nondeductible contributions to a traditional IRA at some point, those specific dollars aren’t taxed a second time. You track them on Form 8606, and the IRS applies a pro-rata rule: each distribution is treated as a proportional mix of pre-tax and after-tax money, so you can’t cherry-pick the untaxed portion first.³

Federal Tax on Social Security Benefits

Whether Social Security is taxed depends on a figure the IRS calls combined income: your adjusted gross income, plus any tax-exempt interest, plus half of your Social Security benefits. The thresholds have not changed since 1993, so inflation has pulled more retirees into taxable territory each year.

Single filers:

Below $25,000: benefits are not federally taxed
$25,000 to $34,000: up to 50% of benefits become taxable
Above $34,000: up to 85% of benefits become taxable

Married filing jointly:

Below $32,000: benefits are not federally taxed
$32,000 to $44,000: up to 50% of benefits become taxable
Above $44,000: up to 85% of benefits become taxable

The IRS never taxes more than 85% of your benefits, no matter how high your other income goes. Married people filing separately who lived with their spouse during the year get the harshest rule: a $0 base amount, meaning up to 85% of benefits become taxable from the first dollar of other income.⁴

To avoid a large April bill, you can ask the Social Security Administration to withhold federal tax from your monthly check by filing Form W-4V. The choices are four flat rates: 7%, 10%, 12%, or 22%. Nothing else is available.⁵

Roth IRA and Roth 401(k) Withdrawals

Roth accounts flip the tax treatment. Contributions go in with after-tax dollars, and qualified distributions come out entirely tax-free, including all the earnings.⁶

A distribution qualifies when two conditions are met: the account has been open at least five years since your first contribution, and you’re 59½ or older (disability and death also qualify).⁷ Pull earnings out before both conditions are satisfied and those earnings are taxed as ordinary income and hit with the 10% early-distribution penalty. Your original Roth IRA contributions, though, can always come back out tax-free and penalty-free since tax was already paid on that money.

Pension and Annuity Payments

Pension checks from an employer plan are usually fully taxable, because either the employer funded the plan or your contributions went in before tax. Payments show up on Form 1099-R each year.⁸

If you did put after-tax money into an employer pension, part of each check is a tax-free return of what you already paid tax on. The Simplified Method handles the math for qualified employer plans: divide your total after-tax contributions by a set number of expected monthly payments tied to your age at retirement, and that dollar amount is excluded from tax each month until you’ve recovered your full investment. After that point, every payment is fully taxable.⁹ Nonqualified plans use the General Rule instead.¹⁰

Commercial annuities you bought with your own money work on the same idea through the exclusion ratio: each payment splits between a tax-free return of principal and taxable interest. Once your full investment has been returned, every later payment becomes fully taxable.¹¹

Required Minimum Distributions

Tax-deferred accounts don’t get to sit forever. Under the SECURE 2.0 Act, required minimum distributions from traditional IRAs, 401(k)s, 403(b)s, and similar accounts start at age 73. For people born in 1960 or later, the trigger age moves to 75.¹² Roth IRAs have no RMDs during the original owner’s lifetime.¹³

Each year’s RMD equals the prior December 31 account balance divided by a life-expectancy factor from an IRS table. Your very first RMD can be delayed until April 1 of the following year, but that means taking two distributions in one calendar year, which can shove you into a higher bracket.

Missing an RMD is expensive. The penalty is 25% of the amount you should have withdrawn. If you notice and correct the shortfall within the correction window (generally by the end of the second tax year after the RMD was due), the penalty drops to 10%.¹⁴

One planning option worth naming: at 70½ or older, you can transfer up to $111,000 per year directly from an IRA to a qualifying charity. These qualified charitable distributions count toward your RMD but stay out of your taxable income entirely.¹⁵ The money has to go straight from the IRA custodian to the charity; if it lands in your account first, it becomes a taxable distribution.

Early Withdrawals Before Age 59½

If you tap a traditional retirement account before 59½, expect a 10% additional tax on top of the regular income tax. The code includes exceptions: separation from service in or after the year you turn 55 (only for the plan at the employer you left, not IRAs); a series of substantially equal periodic payments under section 72(t); total and permanent disability; unreimbursed medical expenses above the deduction threshold; and payments to a former spouse under a qualified domestic relations order.¹⁶

The Medicare IRMAA Surcharge

This one catches retirees off guard. Medicare Part B and Part D premiums rise once your income crosses certain thresholds, through the Income-Related Monthly Adjustment Amount. The surcharge is based on your modified adjusted gross income from two years earlier, so your 2024 tax return sets your 2026 premiums.

For 2026, the standard Part B premium is $202.90 per month. The surcharge tiers:

$109,000 or less (single) / $218,000 or less (joint): $202.90
$109,001–$137,000 / $218,001–$274,000: $284.10
$137,001–$171,000 / $274,001–$342,000: $405.80
$171,001–$205,000 / $342,001–$410,000: $527.50
$205,001–$499,999 / $410,001–$749,999: $649.20
$500,000 or more / $750,000 or more: $689.90

Part D carries its own surcharge at the same tiers, up to an added $91.00 per month on top of your plan premium.¹⁷

The lookback structure matters for planning. A Roth conversion, the sale of a rental property, or cashing out an inherited IRA can spike your income in one year and drag surcharges along two years later. If your income has since dropped because of retirement, divorce, the death of a spouse, or another qualifying life event, Form SSA-44 asks Social Security to recalculate your premium using current income.

Paying the Tax During Retirement

Wages come with automatic withholding. Retirement income often does not, and skipping ahead on that leaves you with a large April bill and possibly an underpayment penalty.

You can have federal tax withheld from pension and annuity payments by filing Form W-4P with your plan administrator, choosing an amount much the way an employee does with a W-4.¹⁸ For Social Security, Form W-4V gives you the 7%, 10%, 12%, or 22% flat-rate options.⁵

When withholding won’t cover the bill, quarterly estimated payments fill the gap using Form 1040-ES. The IRS expects estimated tax if you’ll owe $1,000 or more after withholding and refundable credits. For tax year 2026, the deadlines are April 15, June 15, and September 15 of 2026, and January 15, 2027.¹⁹ To dodge the underpayment penalty, your combined withholding and estimated payments need to cover at least 90% of this year’s tax or 100% of last year’s, whichever is smaller.²⁰ Many retirees find it cleaner to raise withholding on a pension or Social Security check and skip the quarterly calendar altogether.

State Taxes Vary Widely

State treatment is where things fragment. Nine states impose no personal income tax, so retirement distributions and Social Security escape state tax entirely. On the other end, some states tax retirement income at the same rates as wages with few breaks.

Social Security gets favorable treatment in most places. Only eight states tax benefits at all, and most of those offer exemptions tied to income or age that shield lower- and middle-income retirees. The majority of income-tax states leave Social Security alone regardless of your other earnings.

Pensions and retirement-account withdrawals vary the most. Some states exempt public-employee pensions but tax private-sector retirement income. Others give a flat dollar exclusion that often grows once you pass a certain age. A handful exempt traditional IRA and pension income up to a set threshold. The gap between the friendliest and least friendly states can run into thousands of dollars a year, so where you retire has a direct effect on how far the same nest egg carries you.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. Topic No. 424, 401(k) Plans
3
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4
Internal Revenue Service. Publication 915 – Social Security and Equivalent Railroad Retirement Benefits
5
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6
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8
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12
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13
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14
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
15
Internal Revenue Service. Notice 25-67 – 2026 Amounts Relating to Retirement Plans and IRAs
16
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
17
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
18
Internal Revenue Service. About Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments
19
Internal Revenue Service. 2026 Form 1040-ES
20
Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax