Colorado retirement taxes come down to the state’s flat income tax rate and a set of subtractions for Social Security, pensions, annuities, and IRA distributions, with the main limits being the $20,000 and $24,000 pension and annuity caps and the special Social Security rules for ages 55 to 64. For households with large IRAs, pensions, and taxable investment accounts, the caps are small relative to total income, so the flat rate does most of the work and the planning around the subtractions matters more than the headline rules suggest.
If you’d like to see how these rules apply to your own accounts, you can schedule a call with Inclinevest Wealth Management to talk through your numbers. You can also review our services and fees to see how we work with retirees and pre-retirees.
How Colorado Retirement Taxes Work at a Glance
Colorado starts with your federal taxable income, subtracts any amounts the state allows, and applies a flat rate to the result. There are no brackets, so the rate is the same on the first dollar and the last. The statutory rate is 4.4 percent. A TABOR surplus trigger lowered it to 4.25 percent for tax year 2024, and current law allows further temporary reductions when specified TABOR revenue conditions are met, so confirm the rate for the year you’re filing.
Colorado retirement taxes therefore depend on two questions: how much of your income lands in federal taxable income, and how much of that qualifies for a Colorado subtraction. Qualified Roth withdrawals don’t appear in federal taxable income, so they don’t create Colorado tax. Traditional IRA distributions, pensions, taxable Social Security, interest, dividends, and capital gains all start inside the base.
| Income type | How Colorado treats it |
|---|---|
| Social Security, age 65 or older | Taxable portion fully subtracted, with no income limit |
| Social Security, age 55 to 64 | Fully subtracted if AGI is $75,000 or less (single) or $95,000 or less (joint); above that, it falls under the $20,000 cap |
| Pensions, annuities, IRA distributions | Subtraction of up to $20,000 (age 55 to 64) or $24,000 (age 65 and older) per person |
| Qualified Roth withdrawals | Not in federal taxable income, so no Colorado tax |
| Interest, dividends, capital gains | Taxed at the flat rate; U.S. Treasury interest is generally subtracted |
| Under age 55 | No pension subtraction, with exceptions for death benefits and military retirement |
The rules below reflect current Colorado Department of Revenue guidance, including the 2025 filing guidance, together with current law that applies to 2026.
Does Colorado Tax Social Security?
Social Security is the largest piece of Colorado retirement taxes for many households, and the rules change at 55 and again at 65. For tax years 2022 and later, anyone age 65 or older at the end of the tax year can subtract all of the Social Security benefits included in federal taxable income. There’s no income limit. Beginning with tax year 2025, taxpayers age 55 to 64 can also subtract all of their taxable Social Security when adjusted gross income is $75,000 or less for single filers or $95,000 or less for joint filers. Above those levels, the subtraction stays limited to $20,000.
Only the taxable portion of Social Security qualifies, which is the amount on line 6b of Form 1040 rather than the gross benefit on line 6a. Federal tax can apply to as much as 85 percent of benefits depending on your other income, and IRS Publication 915 includes a worksheet for the calculation. Age is measured on the last day of the tax year, so turning 65 on December 30 qualifies you for the 65 and older rules for that entire year.
Households with higher incomes between 55 and 64 will usually exceed the AGI thresholds. In that case Social Security counts against the $20,000 cap along with other pension income instead of being subtracted in full.
The Colorado Pension and Annuity Subtraction
Colorado retirement taxes also include a separate subtraction for pension and annuity income. The Colorado pension and annuity subtraction lets people age 55 and older remove qualifying retirement income from federal taxable income, up to $20,000 per person from age 55 through 64 and $24,000 per person at 65 and older. Taxpayers under 55 can also subtract pension and annuity income received as a death benefit, up to $20,000.
According to the Department of Revenue, qualifying income includes:
- Pensions and annuities reported on line 5b of the federal return, including periodic payments from an employer plan, uniformed services retirement pay, and fully matured privately purchased annuities
- Distributions from traditional, SEP, and SIMPLE IRAs reported on line 4b
- Social Security benefits included in federal taxable income
- Certain permanent disability payments received at 55 or older
Only the federally taxable amount counts. Distributions from an IRA or self-employed retirement plan that are subject to the federal early withdrawal penalty don’t qualify, and the subtraction isn’t available to trusts, estates, or C corporations.
Inherited accounts follow a specific rule. A taxpayer under 55 who receives qualifying pension or annuity income because of the death of the person originally entitled to it can subtract up to $20,000, and the distribution generally shows code 4 in box 7 of Form 1099-R. The benefit has to be paid directly to the individual. If it’s paid to a trust or estate and then passed to the individual, it doesn’t qualify. That makes the beneficiary designation on an account a Colorado tax question as well as an estate planning question. Inherited accounts are a specialty of ours, and our inherited IRA rules guide covers the federal side.
How the Social Security Subtraction and the Pension Subtraction Interact
The Department of Revenue states that any subtraction claimed for Social Security reduces the subtraction available for other pension and annuity income. The DR 0104 instructions spell out the math. At 65 and older, you can subtract $24,000 minus the amount you subtract for Social Security, and if the Social Security subtraction is more than $24,000, no pension or annuity subtraction is available. Between 55 and 64 the starting amount is $20,000.
Two examples show the effect. A 66-year-old has $20,000 of taxable Social Security and $50,000 of IRA distributions. The Social Security subtraction is $20,000, which leaves $4,000 of room for the IRA income. The total subtraction is $24,000, and Colorado taxes the remaining $46,000 at 4.4 percent, which is $2,024.
A 68-year-old has $30,000 of taxable Social Security and $50,000 of IRA distributions. The Social Security is subtracted in full, and nothing is left under the cap for the IRA income. Colorado taxes the full $50,000, which is $2,200.
Some online calculators treat the two subtractions as separate and stack them, which overstates the benefit. The Department’s guidance and the DR 0104 booklet are the sources to follow when you model Colorado retirement taxes.
Joint Filers Get Two Separate Subtractions
On a joint return, each spouse figures eligibility and the subtraction separately, based on their own age and their own qualifying income. If one spouse’s qualifying income exceeds that spouse’s limit, the excess can’t be subtracted by either spouse, even when the other spouse has room to spare. Taxable Social Security is split between spouses in proportion to each person’s gross benefits, using a worksheet in the Department of Revenue guidance.
Colorado retirement taxes depend on whose name is on the income. A household where one spouse has a large pension and the other has little qualifying income leaves part of the second subtraction unused. After one spouse passes away, the survivor has one subtraction instead of two and generally files as a single taxpayer in later years, which adds to the tax change that follows the loss of a spouse.
What the Subtraction Is Worth for Higher-Income Retirees
The subtraction is a fixed dollar amount. At the 4.4 percent rate, $24,000 saves at most $1,056 per person per year, and $20,000 saves at most $880. Consider a married couple, both 65 or older, with $250,000 of federal taxable income, at least $48,000 of which qualifies for the subtraction. Subtracting $48,000 leaves $202,000 taxed at 4.4 percent, which is about $8,888 of Colorado tax. The subtractions reduced that bill by $2,112.
For households at that level, Colorado retirement taxes depend mostly on the flat rate and on which income sources land in the base. Long-term capital gains, qualified dividends, and interest are part of federal taxable income and generally remain subject to the same flat rate, because Colorado doesn’t have a lower rate for capital gains. Interest from U.S. Treasury obligations is generally the exception, since the Colorado return includes a subtraction for U.S. government interest on Schedule DR 0104AD. Colorado also allows a separate capital gain subtraction for certain qualifying Colorado assets and transactions, so a large gain from selling a business or qualifying Colorado property can call for additional analysis.
Military, PERA, and Railroad Retirement
Colorado retirement taxes include special rules for military retirees, PERA members, and railroad retirees.
Retired servicemembers 55 or older use the regular pension and annuity subtraction for military retirement pay. Those under 55 can subtract up to $15,000 of military retirement benefits for tax years 2022 through 2028. Many aerospace and defense professionals pair a military pension with a second career in industry, and our aerospace and defense financial planning page covers the other planning questions those households face, from equity compensation to rollovers.
Most benefits from the Public Employees’ Retirement Association (PERA) and the Denver Public Schools Retirement System don’t qualify for the separate PERA subtraction, which applies only to contributions made between July 1, 1984, and December 31, 1986 (calendar 1986 for Denver Public Schools). PERA retirees can still use the regular pension and annuity subtraction.
Railroad retirement benefits are exempt from Colorado tax regardless of age and aren’t subject to the $20,000 or $24,000 limits.
Colorado Retirement Taxes Beyond the Income Tax
Colorado has a 2.9 percent statewide sales tax, and local governments add their own. Colorado doesn’t levy a state estate or inheritance tax, so federal rules drive estate tax planning for Colorado residents.
Property tax is where retirees may find another benefit. The Senior Property Tax Exemption removes 50 percent of the first $200,000 of a home’s actual value from taxation, a maximum reduction of $100,000 in actual value, and the state reimburses the exempted tax. To qualify, you must be 65 or older on January 1, and you must have owned and occupied the home as your primary residence for at least 10 consecutive years. Applications go through the county assessor. For property tax years 2025 and 2026, Colorado also has a qualified-senior primary residence classification that temporarily reinstates the same 50 percent reduction on a new primary residence for seniors who received the exemption in 2020 or later but moved. That provision covers only the 2025 and 2026 property tax years, and some counties list a March 15 application deadline.
Planning Moves That Change Colorado Retirement Taxes
Roth conversions and Roth withdrawals
Qualified Roth withdrawals don’t enter federal taxable income, so they don’t affect Colorado tax, and they don’t push AGI above the thresholds for the 55 to 64 Social Security subtraction. Roth conversions add to federal taxable income in the year of the conversion. Colorado’s flat rate means there’s no state bracket to manage, so Colorado retirement taxes on a conversion run 4.4 percent on each converted dollar to the extent no subtraction is available for it. Once taxable Social Security passes $24,000 at 65 and older, no pension subtraction is left to absorb any of it. Ask your tax preparer how a conversion will be reported on the Colorado subtractions schedule before you model the state cost.
Distributions from each spouse’s own accounts
Because the subtraction is figured spouse by spouse, distributions from the account of a spouse with unused room can use a subtraction that would otherwise go unclaimed. Whether this adds meaningful savings depends on each spouse’s Social Security, pension, and account balances, so it’s a candidate for modeling rather than a rule of thumb.
Large income events
Years with RSU vesting, option exercises, a business sale, or large capital gains are taxed at 4.4 percent on top of federal tax, and those are the years when the retirement subtractions matter least. If concentrated stock drives your income, our equity compensation planning page and high-income professionals page cover how we approach those decisions.
Estimated payments and withholding
Colorado has its own estimated payment rules and charges interest on underpayments. A large IRA distribution or Roth conversion late in the year can leave a Colorado balance due even when federal withholding looks adequate, so coordinate state withholding on distributions with your tax preparer.
Is Colorado Tax-Friendly for Retirees?
The answer depends on income level. Compared with states that have no income tax, such as Florida and Texas, Colorado taxes more of a retiree’s income. Colorado retirement taxes sit in a moderate range for a flat 4.4 percent rate paired with a full Social Security subtraction at 65. The subtractions help moderate-income retirees the most and help high-income retirees the least.
For higher net worth households, state income tax is one line in a longer list that includes property taxes, home values, insurance costs, healthcare access, and proximity to family. Our guide on the best states to retire for high-net-worth retirees compares those factors, and the post on how much you need to retire in Colorado looks at the spending side.
What Could Change
The legislature has considered removing the caps entirely. Senate Bill 25-136 would have let anyone 55 or older subtract all pension and annuity income starting in tax year 2026, and the Senate State, Veterans, and Military Affairs Committee postponed it indefinitely on February 27, 2025. House Bill 26-1062 proposed the same change starting in tax year 2027 and was postponed indefinitely in February 2026. The caps remain $20,000 and $24,000. Colorado retirement taxes could also move through the TABOR surplus triggers that adjust the income tax rate. Check current Department of Revenue guidance before relying on any figure in a plan.
Putting Colorado Retirement Taxes Into Your Retirement Income Plan
State tax is one input into a withdrawal strategy that also has to account for federal brackets, Medicare premium surcharges, Social Security timing, required minimum distributions, and Roth conversion opportunities. Colorado retirement taxes tend to be smaller than the federal bill, but they’re a predictable 4.4 percent on every dollar above the subtractions, which makes them straightforward to model once you know which of your income sources qualify. Our retirement income planning page for Colorado explains how we coordinate those pieces.
If you’d like help working out how Colorado retirement taxes affect your own withdrawal plan, you can schedule a conversation or review our services and fees. Most meetings take place by video, with in-person meetings available when necessary.
Key Takeaways
- Colorado retirement taxes start from federal taxable income and apply a flat rate, 4.4 percent in the statutory schedule.
- At 65 and older, taxable Social Security is fully subtracted. From 55 to 64, it’s fully subtracted only when AGI is $75,000 or less (single) or $95,000 or less (joint).
- The pension and annuity subtraction is capped at $20,000 (55 to 64) or $24,000 (65 and older) per person and covers pensions, annuities, and IRA distributions.
- Any Social Security subtraction reduces the room left for other pension and IRA income, so the two don’t stack.
- Joint filers calculate the subtraction spouse by spouse, and unused room can’t be transferred.
- For higher-income households, the subtraction saves at most $1,056 per person at 65 and older, so the flat rate and the mix of income sources drive the bill.
- Qualified Roth withdrawals aren’t part of Colorado taxable income, and Roth conversions are taxed at 4.4 percent to the extent no subtraction applies.
- Bills to remove the caps were postponed indefinitely in 2025 and 2026.
About the Author
Gabriel Motta, CFP®, MBA, is the founder and principal of Inclinevest Wealth Management, a fee-only fiduciary retirement financial advisor and financial planner. He works with high-net-worth pre-retirees and retirees nationwide, with particular experience serving aerospace and defense professionals. As a retirement planner and wealth manager, Gabriel helps clients navigate retirement income planning, Social Security strategy, tax-efficient withdrawals, and equity compensation. Gabriel is a NAPFA and XY Planning Network member. Learn more about Gabriel and Inclinevest Wealth Management (https://www.inclinevest.com/about-inclinevest-denver/) or schedule a conversation (https://calendly.com/inclinevest/inclinevest).
Sources
- Income Tax Topics: Social Security, Pensions and Annuities, Colorado Department of Revenue: https://tax.colorado.gov/income-tax-topics-social-security-pensions-and-annuities
- 2025 Colorado Individual Income Tax Booklet (DR 0104), Colorado Department of Revenue: https://tax.colorado.gov/sites/tax/files/documents/Book104_2025.pdf
- Subtractions from Income Schedule (DR 0104AD), Colorado Department of Revenue: https://tax.colorado.gov/DR0104AD
- Individual Income Tax: Information for Retirees, Colorado Department of Revenue: https://tax.colorado.gov/retirees
- SB 25-136, Expand Deduction for Retirement Benefits (fiscal note), Colorado General Assembly: https://content.leg.colorado.gov/sites/default/files/documents/2025A/bills/fn/2025a_sb136_f1.pdf
- HB 26-1062, Expand Deduction for Retirement Benefits, Colorado General Assembly: https://leg.colorado.gov/bills/HB26-1062
- Colorado Reduces 2024 Income Tax Rate and Provides Mechanism for Temporary Reductions for 2025-35, EY Tax News: https://taxnews.ey.com/news/2024-1127-colorado-reduces-2024-income-tax-rate-and-provides-mechanism-for-temporary-reductions-for-2025-35
- Colorado State Taxes: What You’ll Owe in the 2026 Tax Season, AARP: https://www.aarp.org/states/colorado/state-taxes-guide/
- Senior Citizen Exemption, Adams County, Colorado: https://adcogov.org/node/4461
- Publication 915, Social Security and Equivalent Railroad Retirement Benefits, Internal Revenue Service: https://www.irs.gov/forms-pubs/about-publication-915
- SB 24-111, Senior Primary Residence Property Tax Reduction (fiscal note), Colorado General Assembly: https://leg.colorado.gov/sites/default/files/documents/2024A/bills/fn/2024a_sb111_f1.pdf
- Notice for Qualified Senior Primary Residence Classification, Larimer County: https://larimer.gov/sites/default/files/notice-qualified-senior-primary-residence-classification.pdf
This article is for general informational and educational purposes only. It isn’t personalized investment, tax, or legal advice, and it shouldn’t be relied on as a substitute for guidance specific to your situation. Inclinevest LLC is a registered investment adviser. Registration doesn’t imply any level of skill or training. Please consult a qualified professional before making decisions about your own financial circumstances.
