From Kiplinger · · 2m
IRS Tax-Free Retirement Income Types
Five retirement income sources the IRS doesn't tax.
In brief
Five retirement income sources the IRS doesn't tax. Life insurance proceeds, qualified Roth withdrawals, municipal bond interest, after-tax pension portions, and at least 15% of Social Security benefits are tax-free for retirees. Originally reported by Kiplinger.
Retirement income tax challenges
For some retirees living on fixed income, high costs like gasoline prices up 27.4% from a year earlier strain budgets.
Taxable retirement income varies
Not all retirement income is taxed the same way: some is fully taxable, partially taxable, or completely excluded from federal taxable income.
Life insurance proceeds
Life insurance proceeds generally aren't taxable income when paid to beneficiaries after the insured person's death.
Qualified Roth withdrawals
Qualified withdrawals from Roth IRAs and Roth 401(k)s are tax-free if you meet the five-year holding period and are at least 59 and a half years old.
Municipal bond interest
Interest from many municipal bonds is exempt from federal income tax but may be subject to state or local income tax.
After-tax pension portions
If you contributed after-tax money to a pension or annuity, you generally don't pay income tax on the portion representing your original investment.
Social security tax-free portion
At least 15% of Social Security benefits remain nontaxable depending on your income level and combined income thresholds.
Social security tax thresholds
For 2026, Social Security benefits generally aren't taxable if your combined income is less than $25,000 for single filers or $32,000 for married couples filing jointly.
State tax considerations
Nine states don't impose individual income tax, but state taxes on retirement income vary based on where you live and your specific income sources.
Retirement tax planning
Start planning before withdrawals to avoid tax spikes and consider how state taxes may affect your retirement income.
Tax-free retirement income
Life insurance proceeds, qualified Roth withdrawals, municipal bond interest, after-tax pension portions, and at least 15% of Social Security benefits are tax-free for retirees.
IRS tax rules
The IRS includes tax-exempt interest when calculating Social Security benefits taxability, potentially making up to 85% of benefits taxable.
State tax differences
Some states tax Social Security benefits but exempt pension income, traditional IRAs, 401(k)s, or other retirement accounts.
Retirement tax bottom line
Traditional IRA and 401(k) withdrawals are generally taxable, so spread income out to avoid large tax spikes.
The headline
Life insurance proceeds, qualified Roth withdrawals, municipal bond interest, after-tax pension portions, and at least 15% of Social Security benefits are tax-free for retirees.
