General/Taxability Issues including Distributions, Early Withdrawals, 10% Additional Tax, Defaulted Loans

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

Answer: 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.

Generally, your pension or annuity is usually fully taxable:

If your employer contributed all of the cost without including the cost in your taxable wages, or

If you got back all of your previously taxed contributions tax free in previous years.

Generally, your pension or annuity will be partially taxable:

If you contributed after-tax dollars. You will not pay tax on the part of the payment that represents a return of the after-tax amount you paid.

If you receive pension or annuity payments before age 59-1/2, you may be subject to an additional 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.