Tax Guides for Phoenix Retirees

If you’re a retiree, your income may be largely or entirely derived from specific retirement savings tools you invested in during your working years. Common examples include Roth and traditional IRAs, 401(k)s and annuities. If you’re unsure of how to report that income or what your tax obligations are when you’re no longer earning a traditional paycheck, you’re not alone.

In most cases you’ll receive a Form 1099-R for:

• IRAs
• Annuities
• Pensions
• Profit Sharing Retirement Plans
• Survivor Benefits
• Insurance Contracts
• And Other Eligible Retirement Savings 

The companies managing your retirement plans or accounts should send you a 1099-R for each account if you received a distribution of $10 or more.

The team at Fullerton Financial Planning can help you manage all aspects of retirement savings and financial management, including meeting tax obligations. If you have specific questions, please don’t hesitate to call (623) 974-0300 to speak with a financial advisor.

Roth IRA

Retirees do not need to report income from a Roth IRA on their tax return as long as they do not withdraw any money from the account. Roth IRA contributions are made with after-tax dollars, so qualified withdrawals in retirement are tax-free. It's important to consult with a tax professional or the IRS for specific guidance on reporting Roth IRA income.

Traditional IRA

Retirees need to report income from a traditional IRA on their tax return, and they may owe taxes on the money they withdraw. Traditional IRA contributions are made with pre-tax dollars, so withdrawals in retirement are taxed as ordinary income. If a retiree is required to take required minimum distributions (RMDs) from their traditional IRA, which usually begins at age 72, they will also need to report these as income on their tax return.

Annual RMDs should be automatically calculated by the company managing your IRA. When you sign up for an IRA you should have designated an account to which the proceeds will be transferred. If you’re a retiree or soon-to-be retiree, you may want to double check the designated account is appropriate for your needs.

Although this may sound somewhat straightforward (being essentially automatic), the process can get complicated for retirees with multiple IRAs or inherited IRAs, as RMDs might be calculated separately, and all must be deducted from the appropriate account.

You don’t have to send RMDs directly to a checking or savings account to pay for expenses. You have the option to have them deposited into other brokerage accounts or eligible savings plans, but they will still be taxed as income.

401(k)

Retirees need to report income from a 401(k) on their tax return, and they may owe taxes on the money they withdraw. Contributions to a 401(k) plan are made with pre-tax dollars, so withdrawals in retirement are taxed as ordinary income. If a retiree is still working and over age 59 ½, they can withdraw money from their 401(k) without penalty but it will be taxed as ordinary income. There are a handful of exceptions (such as becoming permanently disabled), but in most cases early withdrawals will be subject to a 10 percent penalty in addition to income taxes.

Annuity

Depending on the type of annuity and how it was set up, the income may be taxed as ordinary income or capital gains. It's important to consult with a tax professional or the IRS for specific guidance on reporting annuity income and determining the tax implications of different types of annuities. You should carefully review the annuity contract, preferably with the help of a tax or financial planner, as some annuities may have some tax-deferred features. It’s often a good idea to educate yourself on the tax implications of specific types of annuities before purchasing.

Get Help With Your Retirement Taxes in Phoenix

Are you a retiree or approaching retirement age and you have concerns about reporting RMDs or income from annuities? Working with an experienced tax professional, retirement planner or financial advisor may help put your mind at ease and ensure you are properly reporting all retirement income. Speak with a financial advisor at Fullerton Financial Planning by calling us at (623) 974-0300.