5 Most Common Mistakes Retirees Make on Their Taxes
Written by
Caitlyn Moorhead
Edited by
Gary Dudak
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Even when you’re done with work, the harsh financial reality of life is that you’re not done with taxes.
After you retire, you’ll still have to keep your receipts, manage your accounts and file your taxes. In fact, you may have even more financial complexities to deal with (no matter the tax preparer or tax software you go with) in the form of retirement plan distributions and Social Security checks.
While none of these obligations should be overwhelming, it’s important to remember that tax planning still exists. To help keep you on track, take a look at these five common tax filing mistakes that are easy for retirees to make in order to avoid these errors yourself.
Forgetting Your Required Minimum Distributions
Some retirees can’t wait to get their hands on their retirement accounts. After age 59 1/2, the 10% penalty for early withdrawal on most distributions vanishes, making these accounts prime targets for those in need of money.
However, some retirees have ongoing sources of income, such as rental income or other pension distributions, and they don’t necessarily need to take money out of their retirement accounts. If you fall into this category, you’ll have to pay attention after you turn age 72 — 73 if you turn 72 on or after Jan. 1, 2023. At that point, the government requires you to begin taking distributions from your taxable retirement plans, such as any IRAs or 401(k) plans you participate in.
Neglecting To Pay Tax on Retirement Distributions
Not all retirement distributions are taxable. If you were wise enough to open and maintain a Roth IRA during your working life, you’ll be happy to know that qualified Roth distributions — like the ones you will take after you retire — are tax-free.
However, most other retirement plan distributions are indeed taxable. Some retirees are under the mistaken impression that once the 10% penalty for early withdrawal passes at age 59 1/2, they don’t have to pay tax on their IRA distributions either. Except for the Roth IRA or the withdrawal of after-tax contributions, distributions from traditional IRAs and 401(k) plans are fully taxable. You’ll have to factor this into your calculations on how much you’re planning on withdrawing from your plans.
Automatically Taking the Standard Deduction
Many tax professionals can attest that one common tax mistake many retirees make is taking the standard deduction on autopilot. The standard deduction for the 2025 tax year is $15,000, or depending on your filing status, $30,000 for married couples filing jointly. However, if you’ve got some big medical bills that exceed 7.5% of your adjusted gross income, you can itemize them on Schedule A. In some cases, those itemized deductions may exceed the amount of your standard deduction.
Yes, your income is likely less than during your working years, making it logical that you’d continue to take the standard deduction. However, one big change that typically comes about in retirement is increased medical expenses. Filing your tax return will need some slight adjustments if you want to get the best outcome.
Overlooking Taxable Social Security Distributions
Social Security distributions can seem like the one reward for a life of hard work. After you retire, you suddenly begin receiving monthly checks from the government, and they last for the rest of your life. Tax laws are tax laws, though, and you may have more tax liability on your benefits check than you expect.
While that’s the upside of Social Security distributions, it’s important to remember that if you earn “too much” income, a portion of your Social Security payouts will be considered taxable income. To determine whether or not your benefits are taxable, take half of your Social Security income, plus your spouse’s Social Security income, if applicable, and add that amount to the rest of your income.
If you’re married and filing jointly, 50% of your Social Security benefits may be taxable if that combined amount totals between $32,000 and $44,000. Above $44,000, up to 85% of your Social Security income may be taxable. For single filers, those thresholds are $25,000 to $34,000 and above $34,000, respectively.
Taxation of Annuities
Annuities are a popular retirement planning tool, as they provide lifelong income after annuitization. However, just as the taxation of retirement plan distributions and Social Security payments often get overlooked by retirees, annuity payments do as well.
In most cases, when you receive an annuity payment, a portion of the distribution is a tax-free return of your principal, while the remaining balance is a taxable payout of your earnings. The amount of the payment that is excluded from taxation is known as the exclusion ratio and should be provided to you by your insurance carrier.
Remember that if you withdraw annuity earnings before age 59 1/2, you’ll also face the 10% early withdrawal penalty that applies to tax-advantaged plans like IRAs. It may be a good idea to file an amended return rather than pay more in penalties.
John Csiszar contributed to the reporting for this article.
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