Tax Treatment of Traditional IRA Distributions

Traditional individual retirement accounts offer tax-deferred savings for retirement. When you take distributions from traditional IRAs, you must properly report the amount as income on your federal income tax return.

Function

Traditional IRA distributions are fully taxable in the year the money is withdrawn unless nondeductible contributions have been made to the account. In the event that nondeductible contributions have been made, the portion of the withdrawal that comes from nondeductible contributions is tax free.

Size

The withdrawal will be added to your taxable income and taxed at your marginal income tax rate. However, you do not have to pay payroll taxes on the amount of the distribution because the Internal Revenue Service counts the distribution as unearned income.

Reporting

You will receive a form 1099-R from your financial institution documenting your traditional IRA withdrawal. You must file your income taxes using Form 1040 or 1040A.

References

• Internal Revenue Service: Publication 590
• Kiplinger: Deductible Versus Nondeductible IRA Contributions

Resources

• Internal Revenue Service: Effect of Modified AGI on Deductible Contributions If You Are Covered