If you receive annuity payments from a nonqualified retirement plan, you must use the General Rule. Under the General Rule, you figure the taxable and tax-free parts of your annuity payments using life expectancy tables that the IRS issues. For a fee, the IRS will figure the tax-free part of your annuity payments for you. Generally, if you begin receiving annuity payments from a qualified retirement plan, you use the Simplified Method to figure the tax-free part of the payments.
A qualified retirement plan is a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract refer to Publication for definitions.
Having a thorough understanding of the rules will ensure that you include the right amount in your taxable income for the year you receive a distribution from your retirement account and not pay taxes on amounts that should be tax-free. As always, consult your tax professional for assistance to make sure your after-tax assets are treated correctly on your tax return, and you know which tax forms to file each year. Accessed May 14, Retirement Planning. Your Privacy Rights.
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Table of Contents Expand. Pretax vs. After-Tax Contribution. Tracking Your After-Tax Assets. Taxing of After-Tax Assets. Pro-Rata Distribution. After-Tax Balance Rollovers. The Bottom Line. Key Takeaways Distribution of after-tax assets from a retirement account can be tax- and penalty-free, but only if certain rules are followed. Good recordkeeping and communication with your plan administrator and the IRS are essential.
Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. Earnings in these accounts can accumulate either tax-free or taxed at a later date. Also, you may be able to deduct traditional IRA contributions. However, you will not have to pay this excise tax if you withdraw the excess by the tax return due date plus extensions.
You must begin withdrawing from your traditional IRA by April 1 the year after the year you reach age Note: The required beginning date for required minimum distributions was recently updated to If neither you nor your spouse were active participants in a company plan, you can deduct your traditional IRA contributions regardless of how high your income is.
Roth IRA contributions are still a long-term investment in a retirement savings plan. However, you can still contribute to save on a tax-deferred basis for retirement. However, by having more than one account, you might also pay multiple trustee and bookkeeping fees. The last day to make your IRA contribution each year is the day your return is due for the year, not including extensions. If you have contributed to a nondeductible traditional IRA, you must keep track of your basis.
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