Not all types of retirement income are taxed the same. In this short clip, find out how pensions, IRAs, 401(k)s, Social Security, capital gains, Roth IRAs and municipal interest are taxed. Big Al explains why Roth IRAs and municipal interest are the best options (hint: they’re tax-free).
“Here’s another risk – income taxes. There’s a lot of concern that taxes may become higher in the future and it’s important to know how retirement income is taxed. If you look at pensions, IRAs and 401(k)s, they are taxed at ordinary income rates. Those are the highest of tax rates. Social Security is also taxed at ordinary income rates although there is a component of that that is tax-free, about 15% all the way up to 100% tax-free depending upon your income level. Look at this – capital gains, qualified dividends – those get special capital gains treatment which is usually about 15% tax; for some of you there is no tax. The absolute best one is Roth conversions and municipal bonds because those are tax-free, so if we can get some more money in Roth IRAs, Joe, we’d be a lot better off.”