Every once in awhile we field a question about whether someone’s retirement income will be taxable in retirement. While that is a somewhat complicated question, here are some key points to note:

• Each state taxes retirement income differently. In Illinois, distributions from qualified plans and IRAs are not taxable, nor are Social Security and pension benefits.

• At the federal level, Social Security benefits are taxable based upon income from other sources. Again, there is some calculation that needs to be done to determine how much will be taxable, but it will not exceed 85% of the total benefit (e.g. if you have $20,000 of Social Security income, no more than $17,000 of it will be taxable).

• Also at the federal level, distributions from qualified plans and pensions are taxed at your ordinary tax rate (typically 12%, 22% or 24% for most of our clients), which is determined by how much other taxable income you have.

• Typically in retirement, Roth IRA distributions are not taxable on the federal or state level. Tax planning is a vital part of the retirement planning process, so we look forward to designing a plan that fits each of our clients and the individual situations.