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Frequently Asked Tax Questions

Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.) - General/Taxability Issues including Distributions, Early Withdrawals, 10% Additional Tax, Defaulted Loans


Rev. date: 8/2010


Am I considered covered by an employer sponsored retirement plan for the year if I do not participate in the plan or if I did not work long enough to be vested?

previous topic occurrence Contributions (IRAs & Pension Plans) next topic occurrence
previous topic occurrence Covered by an Employer Retirement Plan next topic occurrence
previous topic occurrence Individual Retirement Arrangement next topic occurrence
previous topic occurrence Nondeductible Contributions (IRA) next topic occurrence
previous topic occurrence Plan next topic occurrence
previous topic occurrence Profit Sharing Plan next topic occurrence
previous topic occurrence Qualified Plan next topic occurrence
previous topic occurrence Retirement Plan next topic occurrence
previous topic occurrence Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans) next topic occurrence
previous topic occurrence Tax Sheltered Annuity next topic occurrence
previous topic occurrence Traditional IRA next topic occurrence

The answer to this question depends on the type of retirement plan.
Generally, if your employer's plan has a separate account for each employee, it is a defined contribution plan.
In the other type of plan, a defined benefit plan:
The Form W-2 (PDF) you receive from your employer has a box used to indicate whether you were covered for the year. The "Pension Plan" box should be checked if you were covered in a plan sponsored by the employer.

Rev. date: 8/2010


This is the first year that I received a distribution of benefits from my retirement plan. Are any of my benefits taxable?

previous topic occurrence Individual Retirement Arrangement next topic occurrence
previous topic occurrence Pension and Annuity Income next topic occurrence
previous topic occurrence Profit Sharing Plan next topic occurrence
previous topic occurrence Retirement Plan next topic occurrence

If you receive retirement benefits in the form of pension or annuity payments, the amounts you receive may be fully taxable, or partly taxable in the year received.
Your pension or annuity is usually fully taxable:
Generally, your pension or annuity will be partially taxable:
If you receive pension or annuity payments before age 59-1/2, you may be subject to a 10% tax on early distributions.  See Publication 575.
Note: If you contributed after-tax dollars in the form of designated Roth contributions to a 401(k) plan that permits such contributions, these contributions would be fully taxable in the year of contributions, although qualified distributions from the designated Roth account would not be taxed when received.

Rev. date: 8/2010


What is the maximum amount that I can contribute to my 401(k) plan?

previous topic occurrence Annual Return of One Participant (Owners and Their Spouses) Retirement Plan next topic occurrence
previous topic occurrence Annual Return/Report of Employee Benefit Plan (Info Copy Only) next topic occurrence
previous topic occurrence Contributions (IRAs & Pension Plans) next topic occurrence
previous topic occurrence Pension and Annuity Income next topic occurrence
previous topic occurrence Plan next topic occurrence
previous topic occurrence Profit Sharing Plan next topic occurrence
previous topic occurrence Qualified Plan next topic occurrence
previous topic occurrence Retirement Plan next topic occurrence
previous topic occurrence Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans) next topic occurrence

The rules for retirement plans are complex. Your plan administrator should have written information about your particular plan that explains the limitations imposed by law as well as other limitations that apply under the plan:

Rev. date: 8/2010


I received a lump-sum distribution when I retired. Is there any special tax averaging option on a lump-sum distribution?

previous topic occurrence Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (Info Copy Only) next topic occurrence
Distributions, Lump-sum
previous topic occurrence Lump-sum Distribution next topic occurrence
previous topic occurrence Penalty, Early Distributions from IRAs and Plans next topic occurrence
previous topic occurrence Pension and Annuity Income next topic occurrence
previous topic occurrence Profit Sharing Plan next topic occurrence
previous topic occurrence Qualified Plan next topic occurrence
previous topic occurrence Retirement Plan next topic occurrence
previous topic occurrence Tax Sheltered Annuity next topic occurrence

A lump-sum distribution is the distribution or payment, within a single tax year, of an employee's entire balance from all of the employer's qualified pension, profit-sharing, or stock bonus plans. The distribution must have been made under specific conditions:
For other situations and further information, see Publication 575, Pension and Annuity Income.

Rev. date: 8/2010


If taxes are withheld from a distribution from a 401(k) plan, am I required to include the amount of the distribution as income and also pay the 10% additional tax?

previous topic occurrence Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts next topic occurrence
previous topic occurrence Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (Info Copy Only) next topic occurrence
previous topic occurrence Lump-sum Distribution next topic occurrence
previous topic occurrence Penalty, Early Distributions from IRAs and Plans next topic occurrence
previous topic occurrence Pension and Annuity Income next topic occurrence
previous topic occurrence Profit Sharing Plan next topic occurrence
previous topic occurrence Qualified Plan next topic occurrence
previous topic occurrence Qualified Withdrawals next topic occurrence
previous topic occurrence Retirement Plan next topic occurrence

 

Rev. date: 8/2010


Can I withdraw my elective contributions to a 401(k) plan penalty free to build or purchase my first home?

previous topic occurrence Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts next topic occurrence
previous topic occurrence Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (Info Copy Only) next topic occurrence
previous topic occurrence First-time Homebuyer next topic occurrence
previous topic occurrence Lump-sum Distribution next topic occurrence
previous topic occurrence Penalty, Early Distributions from IRAs and Plans next topic occurrence
previous topic occurrence Pension and Annuity Income next topic occurrence
previous topic occurrence Profit Sharing Plan next topic occurrence
previous topic occurrence Qualified Plan next topic occurrence
previous topic occurrence Qualified Withdrawals next topic occurrence
previous topic occurrence Retirement Plan next topic occurrence

 

Rev. date: 1/2010


I changed jobs and received a distribution (via check) of my entire vested account under my former employer's 401(k) plan. The plan withheld 20% of my account for Federal Income Taxes. Within 60 days of receiving the distribution, I rolled over the distribution to my current employer's 401(k) plan. Since taxes were withheld from the distribution made by my former employer's plan, do I have to include that money as income?

previous topic occurrence Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts next topic occurrence
previous topic occurrence Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (Info Copy Only) next topic occurrence
previous topic occurrence Lump-sum Distribution next topic occurrence
previous topic occurrence Penalty, Early Distributions from IRAs and Plans next topic occurrence
previous topic occurrence Pension and Annuity Income next topic occurrence
previous topic occurrence Plan next topic occurrence
previous topic occurrence Profit Sharing Plan next topic occurrence
previous topic occurrence Qualified Plan next topic occurrence
previous topic occurrence Qualified Withdrawals next topic occurrence
previous topic occurrence Retirement Plan next topic occurrence
previous topic occurrence Rollover next topic occurrence

 
If the amount rolled over was the net amount (the amount of the distribution less the tax withheld):
If the amount rolled over was the gross amount (the amount rolled over included the 20% that was withheld):

Rev. date: 1/2010


If I retire or leave my employer for any reason (including due to being laid off) before I am age 59 1/2, can I withdraw my vested benefits under that employer's 401(k) plan, without having to pay a 10% additional tax? What if I were 55 or older when I separated from service with my employer?

previous topic occurrence Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts next topic occurrence
previous topic occurrence Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (Info Copy Only) next topic occurrence
previous topic occurrence Lump-sum Distribution next topic occurrence
previous topic occurrence Penalty, Early Distributions from IRAs and Plans next topic occurrence
previous topic occurrence Pension and Annuity Income next topic occurrence
previous topic occurrence Profit Sharing Plan next topic occurrence
previous topic occurrence Qualified Plan next topic occurrence
previous topic occurrence Qualified Withdrawals next topic occurrence
previous topic occurrence Retirement Plan next topic occurrence