Is a Retirement Pension Taxable?

Retirement income is taxed at the ordinary income tax rate of the individual. Meaning that your tax rate depends on the amount of money you earn that year, whether it is from a pension, working while in retirement or any other sources of income.

Tax Rates

There is no differentiation as to when the amounts were contributed, or your age. The standard IRS tax rates apply to the amounts distributed. Tax rates range from 0 percent to 35 percent or more, depending on your individual circumstances.

Significance

The original intent was to defer taxes until a participant is in retirement when, presumably, their income will be lower than when they were working full-time, and thereby cause the taxes to be lower.

Types

It also makes no difference if you are taking a complete lump sum distribution or if you are taking a monthly annuity; the taxes due are based solely on the amount you receive during the calendar year.

Reporting

You will receive a 1099-R in the mail which will tell you the amount you received during the year and the amount of tax withheld, if any.

Considerations

You can defer taxes by waiting to take a distribution until age 70 1/2 when distributions become mandatory.

References

• IRS Tax Topics