If you were to plan ahead of time, you can plan your retirement income and keep the taxes as low as possible. First of all, you need to know how these incomes are being taxed by the government, so that you can formulate a strategy to avoid extra taxes.
For the most part, the retirees would receive income from different sources such as the IRAs, the retirement plans, the pensions, the annuities and social security benefits. You must identify each of these incomes and understand the way they are taxed. This would help you manage your investments as well as your income.
Social Security Benefits
Based on the total income you receive, the income received through social securities could be completely or partially tax free. Some amount of calculation is involved in knowing whether you would have to pay taxes on this income. However, you can seek help from a professional finance consultant, so as to better assess your taxes.
Pension Income and Annuity
Calculating the taxes on income through annuity or pension is quite complicated to understand. Such income is fully or partially taxable. In case if your contributions are tax-deferred, then your income would be fully taxable. It is likely that some part of your income could be tax free based on the cost and you would have to pay the taxes for the other part.
Any retirement plan must calculate this taxable part of your income and provide you an assessment in advance. It would be suggestive to get in touch with the pension administrator and know more about the pension payments as well as the taxes involved.
All income that you receive as a part of the IRA distribution could be tax-free or taxable. It largely depends on the kind of plan you choose. If you choose a traditional IRA, the income would be completely taxable. However with a non-deductible IRA plan, the income would be partially taxable, whereas if you have invested in Roth IRAs, then the income received from it would be totally tax free.
There are several other limitations within the IRAs as well and you must know these retirement plans to better calculate the taxes.
As a rule, it is suggestive that the taxpayers must start withdrawing their funds from the 401k accounts and traditional IRAs once they reach the age of 70. No minimum rules are involved here and therefore you would be able to calculate the taxes on your retirement income.
Taxes on retirement incomes are a little difficult to calculate, however there are various resources on the internet which could help you with the process. In addition, you can always seek help of a professional to understand the taxes and plan for them.