Retirement is meant to be a time of peace, reflection, and enjoying the fruits of your labor. However, for many retirees and those approaching retirement, tax questions continue to be a source of confusion and concern. From the taxation of Social Security benefits to required minimum distributions and shifting tax brackets, retirement often introduces new and complex tax issues that require careful planning. At Scout Tax, we frequently hear the same three questions from clients as they finalize their retirement plans. Below, we break down these issues and provide insight from financial professionals, along with important tax changes that could affect your financial future.
1. Will I Be Taxed on My Retirement Income?
Yes, and potentially more than you expect. Many retirees are surprised to learn that retirement income is often still subject to federal and, in some cases, state income taxes.
Types of income that may be taxable include:
- Social Security benefits (up to 85 percent, depending on your income)
- Traditional IRA and 401(k) withdrawals
- Pension income
- Annuities
- Rental income or part-time work
Financial Tip: Coordinate withdrawals from tax-deferred and Roth accounts to manage taxable income efficiently. This approach, known as “tax bracket management,” can help you stay in a lower tax bracket and reduce the amount you owe each year.
Scout Tax Insight: At Scout Tax, we develop customized withdrawal strategies that minimize tax liability. We also help clients prepare for Required Minimum Distributions (RMDs), which begin at age 73 and can significantly impact your annual income taxes.
2. What Happens If I Give Assets or Money to Family Members?
Gifting is a meaningful way to support your loved ones, but it can come with tax implications if not planned correctly.
In 2025, the annual gift tax exclusion allows you to give up to $18,000 per recipient without triggering a federal gift tax return. For married couples, this limit increases to $36,000 per recipient. Additionally, there is a lifetime exemption amount of $13.61 million per person, although this is scheduled to drop significantly in 2026 unless Congress takes action.
The Concern: If you gift appreciated assets such as stocks or real estate during your lifetime, your recipients may have to pay capital gains taxes based on your original purchase price when they sell the asset.
Financial Tip: In many cases, it is more tax-efficient to pass down assets through your estate rather than as a lifetime gift. This allows your beneficiaries to receive a “step-up” in cost basis, which can reduce or even eliminate capital gains taxes.
Scout Tax Insight: We partner with estate planning professionals to ensure that your gifting aligns with your overall tax strategy. At Scout Tax, our goal is to help you transfer wealth in the most tax-advantaged way possible.
3. Will My Property Taxes Increase When I Retire?
While retirement itself does not automatically raise your property taxes, several related decisions and changes might.
Key factors to consider include:
- Your property may be reassessed if you move or transfer ownership, which can increase the taxable value.
- Relocating to a different state or municipality could expose you to higher property tax rates.
- Some areas offer senior property tax exemptions or freezes, but these often require applications or annual renewals.
Financial Tip: Research property tax assistance programs in your area that are available to retirees or people over a certain age. If you are thinking of moving, investigate the total cost of living, including local property taxes, before making a final decision.
Scout Tax Insight: Whether you are transferring ownership, downsizing, or buying a second home, Scout Tax can help you understand how your choices affect your property taxes and long-term financial plan.
Tax Changes to Expect in Retirement
Many people assume that their taxes will decrease once they stop working. In reality, your tax situation may become more complex during retirement. Here are several key tax changes you should be prepared for:
Shift in Tax Brackets
Your income in retirement will likely come from multiple sources, including pensions, investment income, and withdrawals from retirement accounts. If these income streams are not managed carefully, they could push you into a higher tax bracket. Proper planning can help reduce this risk.
Required Minimum Distributions (RMDs)
Starting at age 73, the IRS requires you to begin taking distributions from traditional IRAs, 401(k)s, and similar accounts. These distributions are considered taxable income and may significantly impact your overall tax bill. Failure to take RMDs can result in hefty penalties.
Taxation of Social Security Benefits
Depending on your combined income, up to 85 percent of your Social Security benefits may be taxable. Combined income includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits. Careful coordination of your income sources can reduce or eliminate this tax.
Medicare Premium Surcharges
High-income retirees may face additional charges on their Medicare Part B and D premiums, known as Income-Related Monthly Adjustment Amounts (IRMAA). These surcharges are based on your tax return from two years prior, which means a spike in income today could raise your Medicare costs in the future.
Estate and Gift Tax Law Changes
The current federal estate and gift tax exemption is scheduled to decrease in 2026. This could affect your ability to transfer wealth without triggering taxes. Strategic planning now could help you take advantage of the current exemption before it is reduced.
State-Level Tax Considerations
Each state has different rules regarding the taxation of retirement income, property, and even inheritance. Some states do not tax Social Security income, while others do. If you are considering moving in retirement, be sure to analyze the full tax picture of your new location.
Scout Tax Insight: Navigating these changes requires careful planning. At Scout Tax, we specialize in helping retirees create tax strategies that reflect their evolving needs. Whether it is avoiding IRMAA surcharges or optimizing income to stay within lower tax brackets, we are here to support your financial goals.
Final Thoughts from a Financial Professional
One trusted financial advisor summed it up perfectly: “People plan for how much they will spend in retirement, but not always how much they will owe. Tax planning is retirement planning.” Understanding your tax responsibilities now can protect your savings, enhance your income, and safeguard your legacy.
Retire Smarter With Scout Tax
At Scout Tax, we go beyond simple tax preparation. We work with you to design a comprehensive, tax-efficient retirement plan that helps you keep more of your hard-earned money. From income planning and RMD strategies to estate planning and property tax guidance, we are here to help every step of the way.
