Depending on the types of retirement benefits you receive, they could be taxable. Here are some basics:
Fully Taxable Payments
The pension or annuity payments that you receive are fully taxable if you don’t have an investment in the contract because:
- You didn’t contribute anything to your pension or annuity
- Your employer didn’t withhold contributions from your salary
- You have received all your contributions tax-free in prior years
Partially Taxable Payments
If you made after-tax contributions to your pension or annuity, your pension payments are partially taxable. You don’t pay taxes on the portion of the payment that’s a return of the after-tax amount you paid.
Additional 10% Tax on Early Distributions
Receiving pension or annuity payments before age 59½ may subject you to an additional 10% tax on early distributions. The additional tax doesn’t apply to the portion of a distribution that is tax-free or distributions made:
- As a part of a series of substantially equal periodic payments beginning after your separation from service
- Because you’re totally and permanently disabled
- On or after the death of the plan participant or contract holder
- After your separation from service and in or after the year you reached age 55
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov