Distributions from Qualified Retirement Plans
Retirement and Annuity Income
For employees, coverage in a qualified employer retirement plan is a valuable fringe benefit, as employer contributions are tax-free within specified limits. Certain salary reduction plans allow you to make elective deferrals of salary that are not subject to income tax. An advantage of all qualified retirement plans is that earnings accumulate tax-free until withdrawal.
Along with tax savings opportunities come technical restrictions and pitfalls. For example, retirement plan distributions eligible for rollover are subject to a mandatory 20% withholding tax if you receive the distribution rather than asking your employer to make a direct trustee-to-trustee transfer of the distribution to an IRA or another qualified employer plan.
Whether you have an employer plan or annuity, you must be familiar with the general tax considerations and tax treatment of distributions in order to maximize retirement and tax savings and avoid penalties.
