# Understanding the Impact of Taxes on Your Retirement

Source: https://integrityfinancialplan.com/insights/understanding-the-impact-of-taxes-on-your-retirement
Last updated: 2026-09-28

How Social Security, IRA withdrawals, and state residency are taxed in retirement, what the 2025 tax law changed for retirees, and strategies such as Roth conversions to lower the bill.


Topic: Retirement. Published 2022-03-30.

## Key takeaways

- The 2025 tax law made the 10% to 37% brackets and the larger standard deduction permanent, and added a temporary $6,000 senior deduction for 2025 through 2028.
- Up to 85% of Social Security benefits remain taxable; the income thresholds are still not indexed for inflation.
- Where you live matters: Texas and several other states have no income tax, and states such as Illinois and Pennsylvania exempt most retirement income.
- Roth conversions in the low-income years between retirement and RMD age can lower lifetime taxes and future Medicare surcharges.

If you're nearing retirement or already retired, it’s important to understand how taxes (including recent changes to them) impact your retirement income, as it may be possible for you to pay less in taxes on your hard-earned dollars.

Since each person's tax situation is unique, and the tax rules can change year to year, it can be challenging to get accurate and timely information. This article helps you navigate the retirement tax maze, which can seem daunting at first glance. It delivers comprehensive information regarding retirement taxation and ways to efficiently harvest your income source—whether they are Social Security, 401(k)/IRA, other sources, or a combination of them all. The sections below can better position you to develop [a successful retirement tax strategy](/services/personal-index-portfolios) that can potentially safeguard you from over-taxation—all with the goal of saving you money.

## What the 2025 Tax Law Means for Retirees
The One Big Beautiful Bill Act, signed in July 2025, settled several questions that had been hanging over retirement tax planning.1 The individual tax rates and brackets from the 2017 tax law – 10% through a top rate of 37% – were scheduled to expire at the end of 2025 and are now permanent. The larger standard deduction was also made permanent: $16,100 for single filers and $32,200 for married couples filing jointly in 2026.

Three provisions matter most for people in or near retirement:

- **A new senior deduction.** Taxpayers age 65 and older can claim an additional $6,000 deduction ($12,000 for a couple where both spouses qualify) for tax years 2025 through 2028. It phases out above $75,000 of modified adjusted gross income for single filers and $150,000 for joint filers, and it is available whether you itemize or not.
- **Social Security is still taxable.** Despite campaign promises, up to 85% of benefits remain subject to federal income tax, and the income thresholds that trigger that tax are still not indexed for inflation. The senior deduction offsets the tax for many moderate-income retirees but does not eliminate it.
- **A higher SALT cap.** The deduction for state and local taxes rises to $40,000 (phasing down for incomes above $500,000) through 2029, which may make itemizing worthwhile again for retirees with significant property tax bills.

Because rates are no longer scheduled to rise, the case for accelerating income into the current year purely to “beat the sunset” has weakened. Roth conversions and other tax-diversification moves are now judged on your own bracket today versus your expected bracket in retirement, not on a legislative deadline.

## How Where You Live Factors Into Retirement Taxes
Regardless of federal law, one of the most important decisions you’ll make is where you’ll retire.

Whether you're thinking about downsizing or are simply in the mood for a change of scenery, you're far from alone if you officially decide to relocate during retirement. In fact, according to data from the [**U.S. Census Bureau’s Current Population Survey,**](https://www.census.gov/programs-surveys/cps.html) the number of relocating retirees in 2020 marked a 30% year-over-year increase from the 2019 figure of 397,0002. However, it’s important to consider far more factors aside from the weather as you pick your home for retirement.

Kiplinger has ranked all 50 states based on [**how friendly the tax environment is to retirees**](https://www.kiplinger.com/retirement/602202/taxes-in-retirement-how-all-50-states-tax-retirees) based on the four following factors3:

- State income tax rate
- Average combined state and local sales tax rate
- Median property tax rate
- Estate tax or inheritance tax

States such as Alabama, Illinois, Mississippi, and Pennsylvania exempt most retirement income, and Iowa stopped taxing retirement income for residents 55 and older beginning in 2023.4 Texas, like Florida, Tennessee, and a handful of others, has no state income tax at all – though it makes up part of the difference with above-average property taxes.

On the other hand, investors likely won’t be surprised to learn New Jersey and the Constitution State—Connecticut—can both quickly prove to be states with daunting tax challenges.

It’s important to remember that no state is off-limits to taxation when it comes to your retirement. A bit of proactive planning and research, as it relates to the state’s cost of living and your own day-to-day expenses, can go a long way. Plus, if you do decide to sell your home in the process of moving, [**the IRS allows you to exclude up to $250,000 of capital gains from your income after the sale of your house. If you’re married, the exclusion increases to $500,000**](https://www.irs.gov/taxtopics/tc701).6

## Methods To Minimize Taxes
Whatever the state of federal law, retirees have several deductions and account strategies that can help to combat taxes in the long term.

### Claiming the Higher Standard Deduction
When filing, you have the choice between claiming the standard deduction or itemizing your deductions. For those 65 and older, the IRS offers a higher standard deduction: an extra $2,050 for single filers and $1,650 per qualifying spouse for joint filers in 2026, on top of the new $6,000 senior deduction described above.

Many retirees who meet this age requirement may find that their standard deduction plus the extra standard deduction for age works out to be more than any itemized expenses they can claim. You’ll likely fall into this category if you have paid off your mortgage and no longer have that itemized interest deduction. However, be sure to consider whether itemizing other deductibles, such as your property taxes and medical bills, would outweigh the benefit.

For example, if you decide to itemize, you may have the opportunity to [**deduct unreimbursed medical expenses**](https://www.irs.gov/taxtopics/tc502#:~:text=You%20may%20deduct%20only%20the,of%20your%20adjusted%20gross%20income.)—but the IRS only permits amounts that exceed 7.5% of your adjusted gross income5.

### Extra Retirement Contributions
Contributions to a 401(k) or IRA are tax-advantaged, meaning that the IRS places a cap on [**how much you can contribute each year**](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits)7. For 2026, the 401(k) employee deferral limit is $24,500, with an $8,000 catch-up for those 50 and older and an enhanced $11,250 “super catch-up” for workers aged 60 to 63 whose plans allow it. The IRA limit is $7,500, plus a $1,100 catch-up at 50 and older. Note that starting in 2026, employees who earned more than $150,000 in the prior year must make their 401(k) catch-up contributions on a Roth basis.

### Consider a Roth Conversion
Roth IRAs have income limits on direct contributions – in 2026, the ability to contribute phases out between $153,000 and $168,000 of modified adjusted gross income for single filers and between $242,000 and $252,000 for joint filers. There is no income limit on conversions, however, and the “backdoor” Roth strategy that earlier proposals sought to end remains available.

By undergoing a Roth conversion, account holders can move a portion of their traditional IRA balance—which is funded with pretax dollars—into a Roth IRA and pay the tax on that distribution at the moment. By paying the income tax now, your contributions and earnings are able to grow tax-free into the future inside the Roth IRA.

This strategy is especially useful for investors who anticipate being in a higher tax bracket later in life – for example, in the years between retirement and the start of required minimum distributions at 73 or 75 – and it also reduces future RMDs and the Medicare premium surcharges they can trigger. Conversions raise your income in the year you make them, so they are best sized with your Medicare IRMAA thresholds and the senior deduction phase-out in mind.

Depending on your unique financial positioning and goals for retirement, there may be several other opportunities available to you when it comes to minimizing the impact of taxes on your income.

## Stay Ahead of Taxes During Retirement
Remember: although each investor faces a unique tax situation, the best retirement plan is always a proactive one. While you can’t fully predict how federal laws and regulations will change with each administration, striving to create a diversified portfolio that aligns with your personal goals can position you for long-term financial wellness. Remember, when in retirement, tax diversification can help you structure withdrawals to potentially reduce taxes and increase the amount of your after-tax spendable income.

We provide [**comprehensive financial planning**](/services/financial-planning) to every client, which means we help you be more intentional about your personal finances. We believe that a rich life is not about how much money you have, but rather the sense of personal fulfillment derived from life's journey.  If you are approaching the retirement phase of your life, [**let us help you make that transition by scheduling an introductory meeting today**](https://outlook.office.com/book/IntegrityFinancialPlanning@NETORG7111096.onmicrosoft.com/s/dR5fYmuh7kyEIpFXgr5VTA2).

This content is developed from sources believed to be providing accurate information, and provided by Integrity Financial Planning, LLC. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

References:

1. Fidelity Investments. (2026). What the One Big Beautiful Bill means for your taxes. https://www.fidelity.com/learning-center/personal-finance/one-big-beautiful-bill; Internal Revenue Service. (2025). IRS releases tax inflation adjustments for tax year 2026. https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
2. https://www.census.gov/programs-surveys/cps.html
3. Mengle, R., Muhlbaum, D., & Niedt, B. (2022, February 18). Taxes in Retirement: How all 50 states tax retirees. Kiplinger. Retrieved February 21, 2022, from https://www.kiplinger.com/retirement/602202/taxes-in-retirement-how-all-50-states-tax-retirees
4. Iowa Department of Revenue. Retirement Income Tax Guidance. https://revenue.iowa.gov/taxes/tax-guidance/individual-income-tax/retirement-income-tax-guidance
5. IRS. (2022, February 11). Topic No. 502 Medical and Dental Expenses. Internal Revenue Service. Retrieved February 21, 2022, from https://www.irs.gov/taxtopics/tc502#:~:text=You%20may%20deduct%20only%20the,of%20your%20adjusted%20gross%20income.
6. Topic no. 701 Sale of your home. Internal Revenue Service. (2022). Retrieved February 16, 2022, from https://www.irs.gov/taxtopics/tc701
7. IRS. (2025, November 13). 401(k) limit increases to $24,500 for 2026; IRA limit increases to $7,500. https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500; Retirement topics - IRA contribution limits. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits