Retirement | December 16, 2021

Tax Withholding in Retirement

During your working years, managing your tax withholding is pretty straightforward. Your paycheck is likely your main source of income, and once you’ve submitted your W-4, you probably don’t think much about the amount you’re setting aside for taxes—so long as it’s enough to cover your tax bill. 

Once you retire, however, tax planning can become more complicated.  

“In retirement, your income will likely be drawn from multiple sources—and each source may have different tax withholding rules,” says Hayden Adams, CPA, CFP®, and director of tax planning at the Schwab Center for Financial Research.

Here’s how federal tax withholding generally works for some common sources of retirement income (state withholding may also apply):

  • Traditional, SEP, and SIMPLE IRAs: Unless you specify otherwise, your plan’s custodian will withhold 10% on taxable distributions. Generally speaking, you can change or eliminate your withholding at any time by reaching out to your individual retirement account (IRA) custodian.
  • 401(k), 403(b), and other qualified workplace retirement plans: Plan providers typically withhold 20% on taxable distributions—unless the withdrawal is made to satisfy the annual required minimum distributions (RMDs) mandated by the IRS, which conform to IRA withholding rules.1
  • Annuities and pensions: Taxable, periodic (e.g., weekly or monthly) payments from annuities and pensions are treated as wages using the IRS withholding tables in Publication 15. You can set up or change your withholding by submitting Form W-4P to the payer.
  • Social Security: Withholding isn’t required on Social Security payments, but a portion of your benefits may be taxable, depending on your income. You can set up or change your withholding by submitting Form W-4V to the Social Security Administration.
  • Taxable bank or brokerage accounts: In most instances, taxes are not withheld from capital gains, distributions, or other income generated from such accounts.2 However, you may want to withhold more elsewhere or pay quarterly estimated taxes to help cover any tax liabilities produced by these assets.


If you’re unsure how much you should have withheld each year, you can use the IRS’ Tax Withholding Estimator to calculate your overall tax obligation.

“That said, your estimated tax obligation is just that—an estimate—and will not account for any fluctuations in income throughout the year,” Hayden says. As a result, it’s wise to work with a tax professional. He or she may even recommend you make quarterly estimated tax payments in addition to the amounts already being withheld. “That way, you won’t end up underpaying the IRS throughout the year, which could result in penalties,” Hayden says.

1If your 70th birthday was July 1, 2019, or later, you do not have to take withdrawals until you reach age 72. Roth IRAs do not require withdrawals until after the death of the owner.

2Certain taxpayers may be subject to backup withholding, which requires a payer to withhold tax from payments not otherwise subject to withholding. Learn more about backup withholding.

What You Can Do Next