Many retirement experts estimate you'll need 70% to 80% of your pre-retirement income to live comfortably during retirement. But can withdrawals from retirement accounts push you into a higher tax bracket? The answer depends on the type of account and the size of your withdrawals.

From the retiree's viewpoint, the most advantageous type of retirement account is the Roth IRA or Roth 401(k). That's because contributions to them are made with after-tax dollars—dollars you've paid taxes on. Once you retire, withdrawals, including any earnings from the investments made with your contributions, are tax free. So, withdrawals will not affect your tax bracket.

Traditional IRAs and 401(k)s work differently: You get an upfront tax break when you contribute but then owe taxes on your withdrawals duri🀅ng retirement. These withdrawals are considered taxable income and are taxed at ordinary incom𒐪e tax rates. This means that they could possibly push you into a higher tax bracket in retirement.

Traditional IRA and 401(k) Accounts

Traditional IRAs and 401(k)s are funded with pre-tax dollars, meaning they reduce your taxable income for the year in which you contribute. The downside? You'll pay taxes when you withdraw the funds in retirement.

• Contribution Limits: For 2025, you can contribute up to $7,000 to a traditional IRA (or $8,000 if you're 50 or older). For 401(k)s, the limit is $23,500 in 2025, plus a $7,500 catch-up contribution if you're 50 or older. New in 2025, a higher catch-up contribution limit of $11,500 applies for employees aged 60, 61, 62 and 63 who participate in these plans.
• Tax-Deferred Growth: Both types of accounts grow tax-deferred, meaning you don't pay taxes on earnings until you make withdrawals. This also lowers your taxable income for the year and saves you money at tax time.

Required Minimum Distributions

Assuming you haven't dipped into your retirement savings before age 73 or 75 (depending on the year you were born), you must take 澳洲幸运5官方开奖结果体彩网:required minimum distribu♎tions (🎃RMDs) each year after you reach these ages or face a stiff IRS penalty. Remember, you haven't paid income tax on that mon⛦ey,🌺 and the IRS wants it.

These RMD withdrawals are treated as income. They will factor into your taxable income tax bracket for the year when you start taking them. They could push you into a higher 澳洲幸运5官方开奖结果体彩网:marginal tax bracket (with a higher tax rate) when added to your income from other sources.

It is possible to postpone taking your RMDs if you invest in a particular type of deferred annuity. But there are rules. You may only spend up to $135,000 on the annuity using funds from your traditional IRA or 401(k) account. You can purchase a 澳洲幸运5官方开奖结果体彩网:q꧋ualified longevity annuity contract (QLAC) and keep it within your retirement portfolio.

These funds are kept separate from the amount available for your RMD withdrawals. However, fees may be high, and you cannot tap into the annuity's cash value if you need quick access to the cash in a lump sum.

Roth IRA and Roth 401(k) Accounts

Unlike traditional retirement accounts, Roth IRAs and Roth 401(k)s are funded with after-tax dollars, so you won't get a tax deduction when you contribute. However, your withdrawals will be tax-free, provided you meet certain criteria.

• Tax-Free Withdrawals: You can withdraw your contributions to a Roth account at any time, tax and penalty-free. However, investment earnings are tax-free only if you're at least 59½ years old and have held the account for at least five years since you first contributed to any Roth IRA or Roth 401(k). That's called the "five-year rule."
• Contribution Limits: For 2025, you can contribute up to $7,000 to a Roth IRA (or $8,000 if you're 50 or older). However, Roth IRAs are subject to income limits: Single filers earning over $165,000 (or $246,000 for married couples filing jointly) can't contribute directly to a Roth IRA.
• No RMDs for Roth IRAs: Roth IRAs don’t require withdrawals during your lifetime, making them a great tool for passing wealth to heirs. However, Roth 401(k)s require RMDs unless you're still working and meet certain criteria.

Investment earnings you withdraw early from a Roth retirement account will be added to your income for the year and taxed at your ordinary income tax rate. You may also incur 澳洲幸运5官方开奖结果体彩网:a 10% penalty unless you qualify for an exception.

As with a traditional IRA, you can only contribute the IRA maximum per year plus any eligible catch-up amounts if you are age 50 or older.

No Required Minimum Distributions

Unlike traditional IRAs and 401(k)s, the Roth IRA doesn't require required minimum distributions during the owner's lifetime. However, like traditional 401(k)s, the designated Roth 401(k) does require RMDs unless owners are still working and are not a 5% owner.

If you don't need the money and fit the Roth 401(k) exception, you can leave your funds alone and let the account(s) grow tax free for your heirs.

Penalty-Free IRA Withdrawals

If you take an early withdrawal from a traditional or Roth IRA, you may be on the hook for a 10% penalty—but not if one of these exceptions applies:

• You are totally and permanently disabled.
• You're the beneficiary of a deceased IRA owner.
• You use the distribution to 澳洲幸运5官方开奖结果体彩网:buy, build, or rebuild a home (a $10,000 lifetime limit applies).
• You have unreimbursed medical expenses greater than 7.5% of your 澳洲幸运5官方开奖结果体彩网:adjusted gross income (AGI).
• You’re paying medical insurance premiums after losing your job (and the distribution isn't more than the cost of the insurance).
• You're taking the distribution to pay for qualified education expenses.
• The distribution is due to an IRS levy of the qualified plan.
• You're taking qualified reservist distributions.
• You're taking a series of 澳洲幸运5官方开奖结果体彩网:substantially equal periodic paymꦇents.

Other exceptions have been added from time to time. For instance, people who lost income due to the COVID-19 pandemic were permitted to make early withdrawals.

401(k) Hardship Withdrawals

As with IRAs, an early withdrawal from a 401(k) can trigger a 10% penalty. However, you may be able to take a penalty-free withdrawal if you qualify for a hardship distribution due to "an immediate and heavy financial need."

Under IRS regulations, you may qualify for a hardship distribution if you useജ the money to payꦰ for:

• Medical care expenses
• Costs related to buying a home
• Educational expenses
• Costs to avoid eviction
• Funeral expenses
• Certain expenses to repair damage to your primary home

Tax Brackets for 2024 and 2025

You have to pay taxes on withdrawals from traditional retirement account withdrawals, but they won't necessarily force you into a higher marginal tax bracket. It depends on what bracket you're already in and how much those withdrawals add to your income.

For example, say that you're single, and your income adds up to $40,000 in tax year 2024. Your highest marginal tax bracket is 12%. But any additional income (such as from retirement account withdrawals that are taxable) that pushes you over the $47,150 threshold would be taxed at the next marginal tax rate—22% in this case.

That doesn't mean your entire income will be taxed at 22%. Because of the way marginal tax brackets work, the tax rates on your first $47,150 wouldn't be affected. Only income above that will be.

Here are the tax rates and brackets by filing status for tax years 2024 and 2025.

The Bottom Line

Some people dream of achieving a zero tax bracket in retirement. It's hard to imagine achieving that goal while maintaining a minimally comfortable lifestyle.

In 2024, income tax kicks in when an individual reports more than $11,600 in income (or $23,200 for a couple filing jointly) in 2024. In 2025, those amounts are $11,925 and $23,850. And if your income exceeds $25,000, you must pay taxes on part of your 澳洲幸运5官方开奖结果体彩网:Social Security income.

The trick is to minimize the amount of taxes you owe. One of the ways to achieve that is to invest in a Roth 401(k) or a Roth IRA rath🎶er than their traditional counterparts.

If your money is now in traditional retirement accounts, you might consider a 澳洲幸运5官方开奖结果体彩网:Roth IRA rollover before you retire. You'll owe taxes on the balance you transfer that year, but the lo𒅌ng-term effects on taxes will be beneficial.