Charles Trautman, EA · Since 1969
Why Colorado is easy on retirement income, and where the rules trip people up.
Colorado taxes retirement income lightly, through two subtractions on Schedule DR 0104AD: one for Social Security and one for pensions, annuities, IRAs and 401(k)s. They depend on your age, they work person by person, and they share a single cap. That last part is the one most people, and a lot of software users, get wrong.
Current as of October 2026, for 2025 and 2026 returns. Checked against the Department of Revenue’s 2025 instructions.
Your age on December 31 of the tax year decides which row you’re in. Turn 65 any time during the year and you get the 65-and-older rules for the whole year.
| Your age on December 31 | Social Security | Pensions, IRAs, 401(k)s |
|---|---|---|
| 65 or older | All of the federally taxable amount | Up to $24,000, minus your Social Security subtraction |
| 55 to 64, AGI up to $75,000 single / $95,000 joint | All of the federally taxable amount (new for 2025) | Up to $20,000, minus your Social Security subtraction |
| 55 to 64, AGI above those limits | Up to $20,000 for Social Security and other retirement income combined | |
| Under 55 | Only survivor benefits paid because the original recipient died, up to $20,000. Military retirees under 55 subtract up to $15,000 of military retirement pay through 2028. | |
| Any age | Railroad retirement benefits are subtracted in full, separately, with no cap. | |
Each spouse on a joint return is figured separately, with his or her own age, income and cap.
The $24,000 isn’t in addition to Social Security. Your Social Security subtraction uses up the cap first, and only what’s left is available for pension and IRA income. Social Security itself can go over the cap; nothing else can.
Pat is 68 and single, with $15,000 of taxable Social Security and $30,000 of IRA withdrawals. Pat subtracts the $15,000 of Social Security, then $9,000 of the IRA ($24,000 minus $15,000). Total: $24,000, not the $39,000 many people expect. The other $21,000 of IRA income is taxed by Colorado.
Lee is 72, with $28,000 of taxable Social Security and a $20,000 pension. All $28,000 of Social Security comes off, but that leaves no room under the $24,000 cap, so the whole pension is taxed by Colorado.
Sam and Jo are both 67, each with $10,000 of taxable Social Security. Sam takes $30,000 from his IRA; Jo takes nothing. Sam subtracts $10,000 + $14,000. Jo subtracts her $10,000 of Social Security, and her other $14,000 of room goes unused. It can’t be shifted to Sam. If Jo has an IRA too, taking some of the withdrawals from hers would use both caps.
Everything here is based on the federally taxable amount: line 6b of Form 1040 for Social Security, lines 4b and 5b for IRAs and pensions, not the gross amounts on lines 4a, 5a and 6a. If little of your Social Security is federally taxable, it uses up little of the cap.
Colorado starts from federal taxable income, after the federal standard deduction, the extra deduction for age, and the new $6,000 senior deduction. Add the Colorado subtractions on top of that, and a retired couple with $50,000 of Social Security and $48,000 of IRA withdrawals can still owe Colorado nothing for 2025. Larger IRA withdrawals, pensions and investment income are where Colorado tax starts.
PERA members who contributed between July 1984 and December 1986 may have a small extra subtraction for contributions Colorado already taxed. PERA can provide the statement.
Starting with 2025 returns, people 55 to 64 can subtract all of their taxable Social Security if federal AGI is $75,000 or less single, or $95,000 or less joint. One dollar over and the whole thing falls back to the old $20,000 combined cap. There’s no phase-in.
Chris is 62 and single, with $26,000 of taxable Social Security and AGI of $74,000. All $26,000 comes off. A $2,000 IRA withdrawal pushes AGI to $76,000, and the subtraction drops to $20,000. That $2,000 withdrawal costs at least $350 of Colorado tax.
Only if your taxable Social Security by itself is more than $20,000. Below that, you end up with the same subtraction on either side of the line, because pension and IRA income share the same $20,000 room either way.
Watch the AGI line before December 31. Large IRA withdrawals, Roth conversions and capital gains can wait until the year you turn 65, when the line disappears. Contributions to a 401(k) or HSA, if you’re still working, bring AGI down.
On a joint return, the $95,000 limit applies to your combined AGI, and each spouse who is 55 to 64 is tested against it. A spouse who is 65 or older isn’t affected.
The subtractions are the big ones, but they aren’t the only breaks.
The new $6,000 federal deduction for people 65 and older, for 2025 through 2028, lowers federal taxable income, which is where the Colorado return starts. Colorado didn’t add it back, so it cuts Colorado tax as well. (See the four new deductions.)
Colorado residents 65 or older, or surviving spouses 58 or older, with total income under $19,094 single or $25,788 married for 2025, can get up to $1,178 back for property tax, rent and heat. It’s a separate application, Form DR 0104PTC, and you don’t need to file an income tax return to get it.
If you’re 65 or older on January 1 and have owned and lived in your home for 10 straight years, half of the first $200,000 of its value is exempt from property tax. Apply with your county assessor by July 15. Once approved, it stays until the home changes hands, and a surviving spouse can keep it. The temporary portable version for seniors who moved ends after 2026.
Federal law bars your former state from taxing pension and IRA income once you’ve moved. After you become a Colorado resident, it’s Colorado’s to tax, with these subtractions. The move-year return, split between two states, is where we see the most errors. (See the Colorado highlights.)
The senior housing income tax credit, up to $800, was for 2024 only and can’t be claimed for 2025 or 2026. A 2025 bill to remove the age limits on the Social Security subtraction died.
Amendment 87 would replace the flat 4.4% rate with graduated rates starting in 2027. It doesn’t change these subtractions. (See the November 3 ballot.)
Most of these show up on self-prepared returns. All of them can usually be corrected on an amended return for up to four years after the due date.
Each spouse gets his or her own subtraction. Leaving the second spouse’s off can cost a couple over $1,000 a year.
The opposite error: claiming $24,000 of pension income on top of Social Security. The Department of Revenue can adjust it and send a bill. Social Security comes out of the cap first.
At 65 and older, and now at 55 to 64 under the income limits, the taxable Social Security should come off.
Using the gross amounts on lines 4a, 5a or 6a instead of the taxable amounts on 4b, 5b and 6b.
Subtracting an IRA or 401(k) withdrawal that carried the 10% early withdrawal penalty. It doesn’t qualify, unless it was a death-benefit distribution.
Age is measured on December 31. Someone who turns 65 in December gets the full year at 65.
No. It depends on your age and the kind of income, not on whether you’re still working. A 66-year-old who works and takes IRA withdrawals still gets it. Wages never qualify.
Each of you is figured separately. Your spouse uses the 65-and-older rules and the $24,000 cap. You use the 55-to-64 rules, including the $95,000 joint AGI limit for full Social Security, and the $20,000 cap.
A Roth conversion is a taxable IRA distribution, and it raises your AGI. That matters most for people 55 to 64 near the $75,000 / $95,000 line. Talk to us before converting in those years.
Yes, up to $20,000, if it’s paid directly to you because of his death. If it comes through a trust or estate first, it doesn’t qualify.
No. Social Security is fully exempt at 65 and older, and under the income limits from 55 to 64. Other retirement income is exempt only up to the cap, after Social Security.
Bring us your last few federal and Colorado returns. We’ll check the subtractions for both spouses and amend if something was missed. Taxes can be tough, but the Tax Shop has your back.
These pages are general information, current as of October 2026, and are not advice about your situation. Colorado law changes every session. Confirm anything that matters to you at tax.colorado.gov or call us.