Generally, after retirement, you will begin receiving distributions from your existing retirement plans. Your retirement plan can either have been an employer maintained plan such as a 401(k), 403(b), SIMPLE or Keogh plan or a self-maintained IRA.
Although you may no longer be earning wages and therefore will not receive a W-2, you will receive a form reporting any distributions you have collected during the year.
This money needs to be reported on your tax return as income, because they are taxable benefits.
Depending upon your filing status, your other income, and the type of your plan, these retirement plan distributions may be nontaxable, partially taxable or fully taxable.
Note: figuring out by hand the tax status of your retirement income is beyond the scope of our web site. The IRS provides ample documentation and instructions on how to do this. We provide links to these publications at the bottom of this page.
Sidebar You can quickly establish the status of your income by answering a few questions in the H&R Block e-filing interview. You'll be able to ask for help with your taxes, should you need it, but most importantly, you'll save time, and avoid costly mistakes.
How to report your retirement distributions
If you obtained retirement plan distributions from pensions, profit-sharing plans, IRAs, annuities, or other retirement plans, you will get Form 1099-R in the mail. The code in Box 7 of this form indicates the type of retirement plan distribution and its tax liability. (list of codes).
Basically, pension and annuity income is almost always considered to be fully taxable benefits because the contributions are typically made with pre-tax money.
For each different distribution source you should receive a 1099-R. When using an online tax filing program, or software, enter the information from each form separately, and the program will calculate the tax liability and complete the necessary forms.
You will need to enter the payer's name, address and EIN, and the retirement distribution code located on the form. Select the type of plan from the list of choices provided and provide any additional information about the retirement distribution that may apply to your plan.
Finally enter all the amounts found in each box on your 1099-R in the corresponding boxes shown in the e-filing interview. If you have multiple 1099-Rs enter them separately.
If you have an IRA distribution that contains a nondeductible contribution, Form 8606 must also be completed. (When you e-file, this will be taken care of for you automatically.)
* If you converted any money from a Roth IRA in 1998 and you elected to report it over a four year period you need to report it in this section. The interview will ask that you provide the taxable, nontaxable and partially taxable amounts entered on your 1998, 1999, and 2000 tax returns. These numbers should be located on Form 8606.
Get more help with reporting retirement benefits
In its Premier version, H&R Block includes additional help to aid you in sorting out the sometimes complicated issues that arise when reporting various retirement benefits. Here's a sampling of all the additional help inluded:
• Early Retirement Forecaster shows you when you can safely retire.
• Retirement Tax Advisor gives smart advice for insurance, gifts, inheritance and more.
• Life Events Planner helps you determine the tax impact of retiring within the next year.
• Social Security Trade-Off Calculator shows how income changes affect your social security taxes.
• Added Support for Medical Issues provides tips on disability benefits, life insurance and more.
• Distribution Calculator shows how much you are required to withdraw after age 70 1/2.
• Medical Expense Expert provides guidance on which expenses are deductible.
• Retirement Age Analyzer compares retiring at 62 vs. full retirement age.
• Guidance for Veterans helps you take advantage of retirement benefits set up just for veterans.
Get started, and work on your return, for absolutely free. Begin here.
Early retirement plan distributions
Early retirement plan distributions from your retirement plans are commonly subject to a penalty. Generally, it is recommended that you do not withdraw any funds from retirement plans early to avoid the 10% penalty.
Typically an early withdraw is one made before you turn 60 years of age.
If it is necessary for you to make an early withdrawal, you will need to complete Form 5329, which computes the penalty to which you are subject. If you file your taxes electronically, there is a separate section you will need to complete if this applies to you. You simply enter the amount you withdrew and any additional information they may require. The extra form will be completed for you along with the calculation of the penalty.
Related IRS publications
You can get more information about reporting retirement plan distributions directly from the IRS. Following is a list of pertinent publications and the topics they each cover: