The way the IRS taxes retirement income depends on where it comes from.

  • Social Security: Benefits are taxable as regular income.
  • Traditional 401(k)s and IRAs: Withdrawals are fully taxable as regular income. If you withdraw before the age of 59 ½, there is also a 10% tax penalty.
  • Roth 401(k)s and IRAs: Withdrawals made five years after your first contribution are tax-free. If you withdraw before the age of 59 ½, there is a 10% tax penalty.
  • Pensions: Payments are taxable as regular income.
  • Home sales: Proceeds are subject to capital gains tax; however, up to $250,000 is tax exempt for single filers, and up to $500,000 for those who are filing jointly or as a qualifying surviving spouse.
  • Life insurance proceeds: If you are the beneficiary, proceeds are generally exempt from taxes. However, if you surrender a policy for money, it may subject to tax.
  • Interest -bearing accounts: Interest payments are taxable as regular income, except for municipal bonds, which are exempt from federal and, potentially, state tax.

Not all retirement income is taxed the same way, and determining how much tax you owe when you have multiple sources of retirement income can be complicated. Luckily, our Tax Pros are always here to help. Book your appointment today.

Sharon Brucker, CPA Senior Tax Research Analyst Published on: August 28, 2025
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*This content is for general informational purposes only. It is not intended to be comprehensive and should not be construed as professional tax or financial advice for any specific individual tax situation. Taxpayers should always consult a qualified professional for individual guidance. This information constitutes a solicitation under the Treasury Department's Circular 230. Most offices are independently owned and operated.