Taxable vs. Non-Taxable Retirement Income

Taxable vs. Non-Taxable Retirement Income

Taxable retirement income refers to the portion of income received during retirement that is subject to income tax. This typically includes distributions from traditional retirement accounts such as 401(k)s and traditional IRAs, as well as pensions and certain annuity payments. The amount taxed usually depends on the contributions made and the tax status of the account.

Non-taxable retirement income, on the other hand, consists of income that is not subject to federal income tax. Examples include qualified distributions from Roth IRAs, which are tax-free if specific conditions are met, and certain types of life insurance payouts. This income does not contribute to the taxable income reported on a retiree’s tax return, providing a tax advantage for retirees.