Do I still pay taxes in retirement?

Usually yes, but often less than during your working years. Social Security may be partially taxable, 401(k)/IRA withdrawals are taxed as ordinary income, and pension income is taxable in most states. However, Roth IRA withdrawals are tax-free, and your total income is typically lower, putting you in a lower bracket.

Which states don't tax retirement income?

Nine states have no income tax at all (including Florida, Texas, and Nevada). Additionally, many states specifically exempt Social Security, pensions, or other retirement income. Illinois, Mississippi, and Pennsylvania exempt all retirement income from state tax.

How Taxes Change When You Retire

Life Events4 min read·Updated for 2025

Quick Answer

In retirement, you typically pay less in taxes because your income is lower and some income sources (like Roth IRAs) are tax-free, but you still owe federal tax on Social Security benefits (partially), 401(k)/IRA withdrawals (fully), and pension income (fully). You no longer pay FICA taxes (7.65%) since retirement income is not subject to Social Security or Medicare tax. Strategic withdrawal planning can keep you in a low tax bracket and save thousands per year.

How Each Retirement Income Source Is Taxed

Income Source	Federal Tax	FICA	Notes
Social Security	0-85% taxable	No	Based on total income
Traditional 401(k)/IRA withdrawals	Ordinary income	No	Fully taxable
Roth 401(k)/IRA withdrawals	Tax-free	No	If qualified (age 59.5+ and 5-year rule)
Pension income	Ordinary income	No	Fully taxable
Investment gains (long-term)	0%, 15%, or 20%	No	Preferential capital gains rates
Dividends (qualified)	0%, 15%, or 20%	No	Same as long-term capital gains
Municipal bond interest	Tax-free	No	Not included in federal taxable income

Real Example With Actual Numbers

Patricia retires at 67 in Florida with the following income:

Source	Annual Amount
Social Security	$28,000
401(k) withdrawals	$30,000
Pension	$20,000
Total retirement income	$78,000

Social Security Taxation

Combined income: $30,000 (401k) + $20,000 (pension) + $14,000 (half of SS) = $64,000

Since $64,000 exceeds $34,000 (single threshold), up to 85% of her Social Security is taxable: $23,800.

Federal Tax Calculation

Item	Amount
Taxable 401(k)	$30,000
Taxable pension	$20,000
Taxable Social Security (85%)	$23,800
Total taxable income	$73,800
Standard deduction (65+)	-$16,950
Taxable income	$56,850
Federal tax	~$7,325

What Patricia Doesn't Pay

Working Years Tax	Retirement Tax	Savings
Social Security (6.2%)	$0	Eliminated
Medicare (1.45%)	$0	Eliminated
State income tax (if applicable)	$0 (Florida)	$0 already

Patricia's effective tax rate on $78,000 in retirement income is about 9.4% — much lower than the 18-25% effective rate typical during working years. Use the SalaryHog calculator to estimate retirement tax scenarios.

Strategies to Minimize Retirement Taxes

1. Strategic Withdrawal Ordering

Draw from different accounts in the most tax-efficient order:

First: Roth accounts (tax-free, keeps other income in lower brackets)
Second: Taxable accounts (capital gains rates are lower than ordinary income rates)
Third: Traditional accounts (taxed as ordinary income)

2. Stay Below Social Security Taxation Thresholds

If you can keep combined income below $25,000 (single) or $32,000 (married), Social Security benefits are not taxed at all. Roth IRA withdrawals do not count toward this threshold.

3. Roth Conversions Before Retirement

During lower-income years (or early retirement before Social Security starts), convert traditional 401(k)/IRA funds to Roth. Pay tax at your current low rate to avoid higher rates on Required Minimum Distributions later.

4. Choose the Right State

States that do not tax retirement income are enormously valuable:

State	Social Security	Pension	401(k)/IRA
Florida	Not taxed	Not taxed	Not taxed
Texas	Not taxed	Not taxed	Not taxed
Illinois	Not taxed	Not taxed	Not taxed
Pennsylvania	Not taxed	Not taxed	Not taxed
Mississippi	Not taxed	Not taxed	Not taxed

Moving from New York to Florida in retirement could save $4,000-$8,000+ per year in state taxes. Use the relocation tool to compare.

5. Manage Required Minimum Distributions (RMDs)

Starting at age 73, you must take minimum withdrawals from traditional 401(k) and IRA accounts. These forced withdrawals can push you into higher brackets. Planning ahead with Roth conversions can reduce future RMDs.

The Big Picture: Working vs Retired Tax Rates

Tax	Working ($80K salary)	Retired ($78K income)
Federal income tax	~$8,100	~$7,325
Social Security (6.2%)	$4,960	$0
Medicare (1.45%)	$1,160	$0
Total federal tax burden	~$14,220 (17.8%)	~$7,325 (9.4%)

The elimination of FICA taxes alone saves over $6,000/year. Combined with lower brackets and potential state tax savings, retirement can be significantly more tax-efficient than working years.

Plan your retirement tax strategy using the SalaryHog calculator and explore tax-friendly states with the relocation tool.