1. 401(k)s and traditional IRAs.
You might not have been paying taxes on the money that goes into these accounts, but once you retire that will change.
The big hit will probably come when you turn age 72 (for holders of traditional IRAs and 401(k)s), although it will hit you at age 70½ if you were born before July 1, 1949. And that's if it doesn't come earlier.
At that point you'll have to start taking money out of those accounts (and paying taxes on it). The rate will be your ordinary income tax rate, and it will be calculated on gains and pretax or deductible contributions.
10. Savings bonds.
Interest on these bonds is usually taxable by the feds at ordinary income rates when the bonds mature or are redeemed—whichever is earlier. If you hold HH bonds, you're already declaring and paying tax on their interest (at least, you should be).
But you get a break on federal bond interest from states and localities.
However, there are limits: says Kiplinger, "For 2020, it begins to phase out for joint return filers with modified adjusted gross income over $123,550… $82,350 for everyone else ($121,600 and $81,100, respectively, for 2019). The tax break disappears when modified AGI hits $153,550 and $97,350, respectively ($151,600 and $96,100 for 2019)." (Photos: Shutterstock)
9. CDs, savings accounts and money market accounts.
You're going to be stuck for ordinary income tax rates on interest payments from all of these.
8. Municipal bonds.
You won't have to pay federal taxes on interest from municipal bonds, and maybe not state income taxes if they're issued in your home state, either.
But you'll need to check on that to be sure, since laws vary. And if you sell municipal bonds, the capital gains can be subject to federal tax.
7. Dividends.
If your investments produce dividends, you'll end up paying taxes on qualified (long-term capital gains rate) and/or nonqualified (taxed as ordinary income) gains.
A dividend is qualified, and thus eligible for the lower tax rate, if it's on common stock that you've held for more than 60 days within the window beginning 60 days before and ending 60 days after the date the company declares a dividend payment.
Advertisement
6. Anuities.
For an annuity purchased for retirement income, the portion of payments from principal is tax-free, while the balance is taxable and the insurance company has to tell you that figure.
But if you bought the annuity with pretax funds, such as from a traditional IRA, you'll get socked on taxes for the whole amount as ordinary income—and not as capital gains, either.
5. Stocks, bonds and mutual funds.
If you've held these investments for more than a year, you get to pay long-term capital gains taxes on them—which for 2020, aren't bad: Singles with taxable income less than $40,001 or married filing jointly with taxable income under $80,001 have a long-term capital gains rate of 0 percent.
Beyond that, though, it does go up, with the next rate 15 percent for singles with incomes between $40,001–$441,450, and married couples with incomes between $80,001–$496,600.
Above those income amounts, the top rate is 20 percent. But don't forget the 3.8 percent surtax on net investment income (long-term capital gains, dividends, etc.) of single people with modified adjusted gross incomes over $200,000 and married couples with modified AGIs exceeding $250,000.
The 3.8 percent extra tax, says Kiplinger, "is due on the smaller of net investment income or the excess of modified AGI over the $200,000 or $250,000 amounts." Short-term capital gains are taxed as ordinary income.
4. Pensions.
Usually pensions result from contributions from pretax income, which means you'll have to pay ordinary income tax on the full amount of those monthly checks.
Any after-tax contributions would, of course, be calculated differently.
3. Social Security.
The days of not having to pay taxes on Social Security ended in 1983, when the concept of "provisional income" entered the picture.
While it's still possible not to pay taxes on Social Security, you have to be pretty short on income to do that—less than $25,000 for singles or $32,000 for married couples filing jointly.
Otherwise, you get zapped with tax on up to 50 percent of income between $25,000 and $34,000 ($32,000 and $44,000 for joint filers), or even worse—taxed on up to 85 percent for those with provisional income more than $34,000 ($44,000 for joint filers).
2. Roth IRAs.
You might actually be able to avoid paying taxes on Roth money, since you had to pay taxes on it going into the account.
But beware—you have to have had the account for at least five years before it qualifies for tax-free withdrawals.
And before you take out any gains on the money you contributed without paying taxes on it, you have to be at least 59½—otherwise you'll get socked with a 10 percent early-withdrawal penalty.
Advertisement
1. 401(k)s and traditional IRAs.
You might not have been paying taxes on the money that goes into these accounts, but once you retire that will change.
The big hit will probably come when you turn age 72 (for holders of traditional IRAs and 401(k)s), although it will hit you at age 70½ if you were born before July 1, 1949. And that's if it doesn't come earlier.
At that point you'll have to start taking money out of those accounts (and paying taxes on it). The rate will be your ordinary income tax rate, and it will be calculated on gains and pretax or deductible contributions.
10. Savings bonds.
Interest on these bonds is usually taxable by the feds at ordinary income rates when the bonds mature or are redeemed—whichever is earlier. If you hold HH bonds, you're already declaring and paying tax on their interest (at least, you should be).
But you get a break on federal bond interest from states and localities.
However, there are limits: says Kiplinger, "For 2020, it begins to phase out for joint return filers with modified adjusted gross income over $123,550… $82,350 for everyone else ($121,600 and $81,100, respectively, for 2019). The tax break disappears when modified AGI hits $153,550 and $97,350, respectively ($151,600 and $96,100 for 2019)." (Photos: Shutterstock)
9. CDs, savings accounts and money market accounts.
You're going to be stuck for ordinary income tax rates on interest payments from all of these.
8. Municipal bonds.
You won't have to pay federal taxes on interest from municipal bonds, and maybe not state income taxes if they're issued in your home state, either.
But you'll need to check on that to be sure, since laws vary. And if you sell municipal bonds, the capital gains can be subject to federal tax.
7. Dividends.
If your investments produce dividends, you'll end up paying taxes on qualified (long-term capital gains rate) and/or nonqualified (taxed as ordinary income) gains.
A dividend is qualified, and thus eligible for the lower tax rate, if it's on common stock that you've held for more than 60 days within the window beginning 60 days before and ending 60 days after the date the company declares a dividend payment.
Advertisement
6. Anuities.
For an annuity purchased for retirement income, the portion of payments from principal is tax-free, while the balance is taxable and the insurance company has to tell you that figure.
But if you bought the annuity with pretax funds, such as from a traditional IRA, you'll get socked on taxes for the whole amount as ordinary income—and not as capital gains, either.
5. Stocks, bonds and mutual funds.
If you've held these investments for more than a year, you get to pay long-term capital gains taxes on them—which for 2020, aren't bad: Singles with taxable income less than $40,001 or married filing jointly with taxable income under $80,001 have a long-term capital gains rate of 0 percent.
Beyond that, though, it does go up, with the next rate 15 percent for singles with incomes between $40,001–$441,450, and married couples with incomes between $80,001–$496,600.
Above those income amounts, the top rate is 20 percent. But don't forget the 3.8 percent surtax on net investment income (long-term capital gains, dividends, etc.) of single people with modified adjusted gross incomes over $200,000 and married couples with modified AGIs exceeding $250,000.
The 3.8 percent extra tax, says Kiplinger, "is due on the smaller of net investment income or the excess of modified AGI over the $200,000 or $250,000 amounts." Short-term capital gains are taxed as ordinary income.
4. Pensions.
Usually pensions result from contributions from pretax income, which means you'll have to pay ordinary income tax on the full amount of those monthly checks.
Any after-tax contributions would, of course, be calculated differently.
3. Social Security.
The days of not having to pay taxes on Social Security ended in 1983, when the concept of "provisional income" entered the picture.
While it's still possible not to pay taxes on Social Security, you have to be pretty short on income to do that—less than $25,000 for singles or $32,000 for married couples filing jointly.
Otherwise, you get zapped with tax on up to 50 percent of income between $25,000 and $34,000 ($32,000 and $44,000 for joint filers), or even worse—taxed on up to 85 percent for those with provisional income more than $34,000 ($44,000 for joint filers).
2. Roth IRAs.
You might actually be able to avoid paying taxes on Roth money, since you had to pay taxes on it going into the account.
But beware—you have to have had the account for at least five years before it qualifies for tax-free withdrawals.
And before you take out any gains on the money you contributed without paying taxes on it, you have to be at least 59½—otherwise you'll get socked with a 10 percent early-withdrawal penalty.
Advertisement
1. 401(k)s and traditional IRAs.
You might not have been paying taxes on the money that goes into these accounts, but once you retire that will change.
The big hit will probably come when you turn age 72 (for holders of traditional IRAs and 401(k)s), although it will hit you at age 70½ if you were born before July 1, 1949. And that's if it doesn't come earlier.
At that point you'll have to start taking money out of those accounts (and paying taxes on it). The rate will be your ordinary income tax rate, and it will be calculated on gains and pretax or deductible contributions.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
