FAQ's >> Retirement
Listed below are examples of frequent tax-related questions with corresponding answers. While many issues may seem straightforward, the
answers to many of these questions illustrate the complexity of the U.S. taxation system. For further assistance with these or any other tax
issues, please contact us.
Although the information provided herein is derived from data published by the Internal Revenue Service, it is not considered authoritative,
and should only be used as a general guide to understanding the underlying issues. Authoritative guidance should be obtained from a tax
professional or directly from the Internal Revenue Code, Regulations, Revenue Proclamations, Publications, Bulletins, Announcements, etc.
Am I considered covered by an employer sponsored retirement plan for the year if I do not participate in the plan or if I
did not work long enough to be vested?
If your employer’s plan has a separate account for each employee and any amount was contributed or allocated by you or your employer to
your account, you are considered covered. This is called a defined contribution plan. With this type of plan, it does not matter if you
have worked long enough to be vested.
In the other type of plan, the plan employer must make enough contributions (together with earnings) to provide the retirement benefit
promised in the retirement plan. This is called a defined benefit plan. In this type of plan, if you meet the minimum age and years of
service requirements to participate in your employer’s plan, you are considered covered even if you decline coverage. It does not matter if
you are vested for this type of plan, either.
This is the first year that I received retirement benefits. Are any of my benefits taxable?
If you receive retirement benefits in the form of pension or annuity payments, the amounts you receive may be fully taxable, or partly
taxable in the year received.
How long do I have to roll over a retirement distribution?
You must complete the rollover by the 60th day following the day on which you receive the distribution. This 60-day period is extended for
the period during which the distribution is in a frozen deposit in a financial institution.
If we cash in a pension plan while in our thirties, what forms do we need to fill out?
You will need to file a Form 1040 and show the amount of withdrawal from your pension. Since you took the withdrawal before reaching age
59 ½, you will need to pay a 10 percent additional tax on early distributions from qualified retirement plans that is reported on page 2 of
Form 1040. This tax applies to the distribution that you must include in gross income. It does not apply to any part of a distribution that is
tax free, such as amounts that represent a return of your cost or that were rolled over to another retirement plan. If you meet an exception
to all or part of the penalty, you may need to file Form 5329 with your return.
Can I withdrawal funds penalty free from my 401(k) plan to purchase my first home?
If you are under the age of 59 ½, you cannot withdraw funds from your 401(k) plan to purchase your first home without being subject to a
10 percent additional tax on early distributions from qualified retirement plans. However, depending on the rules for your 401(k), you may be
able to borrow money from your 401(k) to purchase your first home. Your plan administrator should have written information about your
particular plan that explains when you can borrow funds from your 401(k) as well as other plan rules.
If I can’t withdraw funds penalty free from my 401(k) plan to purchase my first home, can I roll it over into an IRA and
then withdraw that money to use as my down payment?
Yes, if you are receiving a distribution from a 401(k) that is eligible to roll over into an IRA and you meet all of the qualifications for
an IRA distribution for a first-time homebuyer. Your plan administrator is required to notify you before making a distribution from your
401(k) plan whether that distribution is eligible to be rolled over into an IRA.
Can a person make a contribution to a SEP-IRA and a Roth IRA, too?
Yes, you can make a contribution to a SEP-IRA and a Roth IRA.
If I am covered by an employer sponsored retirement plan for part of the year, but work the rest of the year for an
employer without retirement plan, how much of my earnings may I deduct for a traditional IRA?
The amount you can deduct will be determined by your modified Adjusted Gross Income (AGI) and filing status.
