Rollovers to Roth IRAs.(p73)
Beginning in 2008, you can roll over distributions directly from a qualified retirement plan to a Roth IRA if, for the tax year of the distribution, your modified adjusted gross income for Roth IRA purposes is not more than $100,000, and your filing status is not married filing separately. See Rollovers to Roth IRAs
, later, for more information.
Tax relief for the Kansas disaster area.(p73)
Special rules apply to the use of retirement funds by qualified individuals who suffered an economic loss in the Kansas disaster area as a result of the tornadoes and storms that began on May 4, 2007. See Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes, for more information.taxmap/pub17/p17-051.htm#en_us_publink100081805
Tax relief for the Midwestern disaster areas.(p73)
Special rules apply to the use of retirement funds by qualified individuals who suffered an economic loss in the Midwestern disaster areas as a result of severe storms, tornadoes, or flooding affecting the Midwestern disaster areas on certain dates in 2008. See Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas, for more information. taxmap/pub17/p17-051.htm#en_us_publink1000107584
Qualified settlement income.(p73)
If you received qualified settlement income in connection with the Exxon Valdez litigation, you may roll over the amount received, or part of the amount received, to an eligible retirement plan. For more information, see Qualified settlement income in Publication 575.taxmap/pub17/p17-051.htm#en_us_publink100032884
Hurricane tax relief.(p73)
Special rules apply to retirement funds received by qualified individuals who suffered an economic loss as a result of Hurricane Katrina, Rita, or Wilma. See Hurricane-Related Relief, in Publication 575, Pension and Annuity Income, or Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma, for information on these special rules.taxmap/pub17/p17-051.htm#TXMP1ba9cc47
This chapter discusses the tax treatment of distributions you receive from:
- An employee pension or annuity from a qualified plan,
- A disability retirement, and
- A purchased commercial annuity.
The following topics are not discussed in this chapter.taxmap/pub17/p17-051.htm#en_us_publink100032886
This is the method generally used to determine the tax treatment of pension and annuity income from nonqualified plans (including commercial annuities). For a qualified plan, you generally cannot use the General Rule unless your annuity starting date is before November 19, 1996. For more information about the General Rule, see Publication 939, General Rule for Pensions and Annuities.taxmap/pub17/p17-051.htm#en_us_publink100032887
If you are retired from the federal government (either regular or disability retirement), see Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits. Publication 721 also covers the information that you need if you are the survivor or beneficiary of a federal employee or retiree who died.taxmap/pub17/p17-051.htm#en_us_publink100032888
Information on the tax treatment of amounts you receive from an IRA is in chapter 17.taxmap/pub17/p17-051.htm#TXMP7d96ebb9
You may want to see:
Publication 575 Pension and Annuity Income 721 Tax Guide to U.S. Civil Service Retirement Benefits 939 General Rule for Pensions and Annuities Form (and Instructions) W-4P: Withholding Certificate for Pension or Annuity Payments 1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 4972: Tax on Lump-Sum Distributions 5329: Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accountstaxmap/pub17/p17-051.htm#en_us_publink100032889taxmap/pub17/p17-051.htm#en_us_publink100087409
A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k) or 403(b) plan designated as Roth contributions. Elective deferrals that are designated as Roth contributions are included in your income. However, qualified distributions are not included in your income. See Publication 575 for more information. taxmap/pub17/p17-051.htm#en_us_publink100087410
If you receive benefits from more than one program under a single trust or plan of your employer, such as a pension plan and a profit-sharing plan, you may have to figure the taxable part of each pension or annuity contract separately. Your former employer or the plan administrator should be able to tell you if you have more than one pension or annuity contract.taxmap/pub17/p17-051.htm#en_us_publink100032890
If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A until you reach minimum retirement age. Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled.
You may be entitled to a tax credit if you were permanently and totally disabled when you retired. For information on this credit, see chapter 33
Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Report the payments on Form 1040, lines 16a and 16b, or on Form 1040A, lines 12a and 12b.
Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks.
For more information on how to report disability pensions, including military and certain government disability pensions, see chapter 5
An eligible public safety officer can elect to exclude from income distributions of up to $3,000 made directly from a government retirement plan to the provider of accident, health, or long-term disability insurance. See Insurance Premiums for Retired Public Safety Officers in Publication 575 for more information.taxmap/pub17/p17-051.htm#en_us_publink100032895
Part of the railroad retirement benefits you receive is treated for tax purposes like social security benefits, and part is treated like an employee pension. For information about railroad retirement benefits treated as social security benefits, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. For information about railroad retirement benefits treated as an employee pension, see Railroad Retirement Benefits in Publication 575.taxmap/pub17/p17-051.htm#en_us_publink100032896
If you receive a disability pension or annuity, you may be able to take the credit for the elderly or the disabled. See chapter 33
The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable parts of amounts paid to you. You can choose not to have tax withheld unless they are eligible rollover distributions. See Eligible rollover distributions
later. You make this choice by filing Form W-4P.
For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing Form W-4P. If you receive an eligible rollover distribution, 20% will generally be withheld. There is no withholding on a direct rollover of an eligible rollover distribution. See Direct rollover option
later. If you choose not to have tax withheld or you do not have enough tax withheld, you may have to pay estimated tax.
Qualified plans set up by self-employed individuals are sometimes called Keogh or H.R. 10 plans. Qualified plans can be set up by sole proprietors, partnerships (but not a partner), and corporations. They can cover self-employed persons, such as the sole proprietor or partners, as well as regular (common-law) employees.
Distributions from a qualified plan are usually fully taxable because most recipients have no cost basis. If you have an investment (cost) in the plan, however, your pension or annuity payments from a qualified plan are taxed under the Simplified Method. For more information about qualified plans, see Publication 560, Retirement Plans for Small Business.taxmap/pub17/p17-051.htm#en_us_publink100032900
If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you.
This chapter covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525, Taxable and Nontaxable Income.
For general information on these deferred compensation plans, see Section 457 Deferred Compensation Plans in Publication 575.taxmap/pub17/p17-051.htm#en_us_publink100032901
If you receive pension or annuity payments from a privately purchased annuity contract from a commercial organization, such as an insurance company, you generally must use the General Rule to figure the tax-free part of each annuity payment. For more information about the General Rule, get Publication 939. Also, see Variable Annuities in Publication 575 for the special provisions that apply to these annuity contracts.taxmap/pub17/p17-051.htm#en_us_publink100087411
If you borrow money from your qualified pension or annuity plan, tax-sheltered annuity program, government plan, or contract purchased under any of these plans, you must treat the loan as a nonperiodic distribution unless certain exceptions apply. This means that you must include in income all or part of the amount borrowed. Even if you do not have to treat the loan as a nonperiodic distribution, you may not be able to deduct the interest on the loan in some situations. For details, see Loans Treated as Distributions
in Publication 575. For information on the deductibility of interest, see chapter 23
No gain or loss is recognized on an exchange of an annuity contract for another annuity contract if the insured or annuitant remains the same. However, if an annuity contract is exchanged for a life insurance or endowment contract, any gain due to interest accumulated on the contract is ordinary income. See Transfers of Annuity Contracts in Publication 575 for more information about exchanges of annuity contracts. taxmap/pub17/p17-051.htm#en_us_publink100032903
If you file Form 1040, report your total annuity on line 16a and the taxable part on line 16b. If your pension or annuity is fully taxable, enter it on line 16b; do not make an entry on line 16a.
If you file Form 1040A, report your total annuity on line 12a and the taxable part on line 12b. If your pension or annuity is fully taxable, enter it on line 12b; do not make an entry on line 12a. taxmap/pub17/p17-051.htm#en_us_publink100032904
If you receive more than one annuity and at least one of them is not fully taxable, enter the total amount received from all annuities on Form 1040, line 16a, or Form 1040A, line 12a, and enter the taxable part on Form 1040, line 16b, or Form 1040A, line 12b. If all the annuities you receive are fully taxable, enter the total of all of them on Form 1040, line 16b, or Form 1040A, line 12b.taxmap/pub17/p17-051.htm#en_us_publink100032905
If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on Form 1040, line 16a, or Form 1040A, line 12a, and report the taxable part on Form 1040, line 16b, or Form 1040A, line 12b.