Pension and IRA Distribution

As a retiree, you likely received income from more than one source, such as Social Security benefits and distributions from IRAs, annuities, 401Ks and/or pensions. Various retirement plans are taxed differently, and the rules for reporting income may vary.

Anyone who received distributions from annuities, pensions, retirement plans, profit-sharing plans, IRAs, or insurance contracts will receive a form 1099-R, showing the taxable amount of income for these distributions.

The type of account and type of contributions into the account will have a significant impact on your tax liability. For example, if the company you worked for made all of the contributions into your retirement account, then any distributions you receive from that account are fully taxable. Similarly, if you made pre-tax contributions, you did not pay any taxes on the income at the time you earned it, so distributions from that account would also be fully taxable. If you made after-tax contributions to a retirement plan, then distributions are not taxed, as you already paid income taxes on that money.

It is possible to defer paying taxes on retirement income by rolling over funds into an IRA account. If you contribute to a traditional or Roth IRA, earnings in these accounts can accumulate either tax-deferred or tax-free. Be aware, though, that there are different rules about withdrawals between Roth and traditional IRA accounts.