Our government provides in-numerous plans for the benefit of their citizens at the dusk of their life, but the preparation starts from the early age. You have to start saving in various programs to reap the benefits later. While laying some money aside, if you get deductions or credits on the savings then you are bound to be taxed for the distributions you receive at maturity of those programs.
If you have not taken any deduction or credit during the saving phase then your distribution will not be taxed. The various retirement programs are:
IRA distributions: You will receive a 1099-R for the distributions from your Individual Retirement Account (IRA). Roth IRA distributions are not taxable because the contribution is not deductible. Contribution to Traditional IRA is tax deductible hence the distribution is taxable. You have to be of 59 years and 6 months to withdraw money from your IRA or else you will be charged additional tax on early withdrawal. Another form of IRA is rollover, which basically means converting one form of IRA into another. Unless there is a distribution in this transaction you are not taxed for the amount. This is important to know because while rolling over the IRA you might receive a 1099-R which will be reported to the IRS. Hence it is important to inform on your tax return that the 1099-R was received for a rollover IRA.
Social Security Benefits: It is similar to an IRA. You put in money while working and also earn credits and when you retire you can avail the distribution. A certain amount of Social Security is withheld by the employer and the money is pooled in your SSB account. You have to reach a certain specific retirement age and should have earned the required number of credits to claim the SSBs. SSBs are sometimes non taxable but sometimes they are partially taxable. If the only income you received during the year was from SSB or its equivalent Railroad Retirement benefit then it is not taxable. If you receive any income other than SSB or RRB like interest or dividend then a part of your SSB or RRB will be taxed.
Pension & Annuities: “A pension is generally a series of definitely determinable payments made to you after you retire from work. Pension payments are made regularly and are based on such factors as years of service and prior compensation.” “An annuity is a series of payments under a contract made at regular intervals over a period of more than one full year. They can be either fixed (under which you receive a definite amount) or variable (not fixed). You can buy the contract alone or with the help of your employer.” Taxability is similar to SSB. Pensions and annuities are partially or fully taxable.
Even in your twilight years, the IRS is not going to be generous to you. With the numerable retirement saving options it also provides you the required taxation on those incomes.
