Retirement tax questions

Distributions from 401K plans and distributions of Roth Contributions are treated differently. 

For the 401K Plan distribution, which are pre-tax contributions, in order to avoid taxability, it would have to have been rolled over within 60 days to another qualified retirement plan or IRA.  

Also, keep in mind that if you are under age 59 1/2 there will also be an early withdrawal penalty of 10% imposed.

 You will get Form(s) 1099-R for your distributions. This form, along with additional info you provide, will determine what portion, if any, of your distribution is taxable.

These boxes on the 1099-R play key roles in determining taxability:

• Box 2a lists the taxable portion of your distribution, but this can change once you give us more info
  • If you see a 0 (zero), then none of it's taxable
  • If the box is blank (empty), the taxable amount needs to be calculated
• Box 2b can also help determine the taxable amount
  • If the Total distribution box is checked, we'll see if you qualify for any special elections that may lower your tax
  • If the Taxable amount not determined box is checked, it means the payer didn’t know the taxable amount of your distribution
• Box 7 provides important codes that identify the specific type of distribution you received and whether you owe a 10% early distribution penalty or qualify for an exception

Just enter the information as it appears on your Form(s)1099-R. We'll use it and your answers to a series of questions to determine the taxable amount of your distribution.

You can take out whatever you contributed into your Roth IRA, tax-free, because you already paid taxes on that money.

You can also make tax-free withdrawals on any additional earnings in your Roth IRA unless either of the following are true:

• You're making the withdrawal less than five years after establishing the Roth.
• You're making an early withdrawal (before age 59½) without the exception for death, disability, or the $10,000 first-time homebuyer distribution.

Generally, as long as your Roth has been open for at least five years, you can withdraw as much as you want (if you're 59½ or older) or anything up to the amount you put in (if you're under 59½) without any taxes or penalties.

We can help you enter your 1099-R.

Alabama does recognize Roth IRA and Roth 401(k) plan distributions as tax-free, which is the same as the federal treatment of such distributions.

Distributions from retirement accounts like an IRA or a 401(k) will be taxed as regular income at Alabama's state income tax rates. These rates range from 2% to 5%. However, Alabama does not tax income from pensions.

Click here for more information on withdrawals from Roth IRAs.

And for additional information on how retirement plan withdrawals affect your taxes click here.