Investment/IRA account tax impact in year turn 59 1/2

[Fernando10]

We are retired and had no income in 2023 and 2024 (we lived off savings and filed married jointly return). Since I will turn 59 1/2 in 2025, and we plan to withdraw money from a taxable investment account and potentially my IRA to live on, does the withdrawal qualify as regular income (same as if I had a paycheck) in terms of tax return? We are trying to determine how much  reported income we’ll have in 2025 to see what kind of health insurance for 2025 we can get from ACA or private insurance.

[KarenJB]

Given that you are taking money from a regular IRA in which you were able to deduct your contributions when you made them as tax deductions, the contributions will count as ordinary income. 

If you had a situation in which your IRA contributions were partially not tax deductible, then part of your withdrawals when you start them in 2025 won't be taxable. For further detail, please the IRS link Topic no. 451, Individual retirement arrangements (IRAs) .

If you are taking money from a regular investment account, given that you are selling stocks or other assets, that will count as capital gains, which is taxed differently than ordinary income. 

For 2025, if your taxable income is $96,700 or less, you won't pay any capital gains tax. As a reminder, taxable income is adjusted gross income less either your standard deduction ($30,000 for married couples in 2025) or your itemized deductions. Your capital gains tax is 15% if your taxable income is between $96,701 to $600,050 and 20% if it is more than $600,050.

Dividends and interest are taxed when you receive them, whether or not they are withdrawn.

Thanks for your question!

[marctu]

So both wages and distributions from a 401(k), assuming it is a pre-tax account, are both income for federal tax purposes.  They both along with many other income items are added or subtracted to get to adjusted gross income.  

For state tax purposes along with the states that do not tax income from work (Alaska, Florida, Nevada,  New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming),  Illinois, Iowa, Mississippi and Pennsylvania do not tax 401(k) distributions.  Beginning in 2026, Michigan will not tax them either.  

Thank you for the question @Fernando10 

All the best,

Marc T.

TurboTax Live Tax Expert

27 Years of Experience Helping Clients