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It depends on what type of plan you have. 

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If you’ve saved up for retirement in an IRA or 401(k) plan, give yourself a pat on the back. Building a retirement nest egg is no easy feat, especially when other expenses, like your mortgage payments, grocery costs, and utility bills no doubt got in the way all those years.

But if you’re getting ready to start tapping your retirement savings after years of building up cash reserves, you may be wondering if that money is going to be yours to keep in full, or if the IRS will be able to get a piece of it. The answer? It depends on the type of retirement plan you have.

Know the rules of your plan

The average senior on Social Security today collects $1,827 a month. If your monthly benefit is comparable, then it’s probably not a lot to live on. That’s where your personal savings come in.

But even if you have a nice nest egg to tap in retirement, money might still be pretty tight at that point in life. And so it’s important to know what to expect tax-wise.

Whether you’ll need to pay taxes on your retirement plan withdrawals or not will depend on the type of account you have. If you saved for retirement in a traditional IRA, your distributions from that plan will indeed be taxable. But if you have your savings in a Roth IRA, taxes on withdrawals won’t apply. (These rules are the same for 401(k) plans, where traditional 401(k) withdrawals are taxable and Roth 401(k) withdrawals aren’t.)

So how much tax will you have to pay if you’re looking at removing funds from a traditional IRA? Well, that will depend on your tax bracket. And the tax bracket you fall into will hinge on your total income.

Now, you might think your total income is limited to retirement plan withdrawals and Social Security benefits. But remember, if you have money in a savings account that’s earning interest, that interest counts as income. So do investment gains in a regular brokerage account. Your best bet is really to sit down with an accountant before you start withdrawing from your retirement savings so you can figure out what your tax liability looks like. That should help you budget more accurately and avoid financial stress.

Be mindful of taxes later in life

Taxes can be a burden at any stage of life. But in retirement, you’ll be limited to a fixed income. That income might consist of different sources, but if you don’t intend to work as a senior, you’ll need to be very careful about managing your money (and even if you do hold down a job as a retiree, accurate money management is still key). That’s why it’s so important to know what taxes to expect.

Not only are traditional IRA withdrawals taxable, but a portion of your Social Security benefits may be taxable, too, depending on your total income. Sitting down with an accountant could help you get a better handle on your retirement taxes so they don’t become a problem for you.

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