Taxes on Pension Plan payments

[lsdon1992]

I am receiving payments on a qualified retirement plan. I turned 59 1/2 in November 2020. I'm still seeing a large tax bill - is that because I wasn't 59 1/2 at the beginning of the year? I do have taxes withheld, but I'm guessing the tax bill is because of the 10% penalty?

[SweetieJean]

There is an exception to the 10% early distribution penalty when a plan participant separates from service in an employer plan the year they turn age 55.   The age for this exception drops to age 50 for certain Federal, state and local public safety employees.

But, as you know, you still owe regular income taxes.  Since nothing was withheld, it's possible you are getting hit with underpayment of estimated tax penalties and interest.  (Which are different than the 10%  discussed above.)  Going forward, you might want to start having taxes withheld.

[ColeenD3]

Yes. Per the IRS:

The distribution will NOT be subject to the 10% additional early distribution tax in the following circumstances:

• after participant/IRA owner reaches age 59½

Early distributions

[lsdon1992]

I AM having taxes with held, so I can't figure out why I have such a high tax bill.  I have owed approximately 3k-4k per year since retiring.  Does it make a difference that I have additional W-2 income?

[DaveF1006]

Yes, it is possible to owe additional taxes with additional W2 if there are not enough taxes taken out of either the W2, 1099R, or both, Keep in mind, combined income from both income sources could put you into a higher tax bracket that may require you to request more income tax to be withheld so you are not faced with an additional tax burden in tax season.

To help you make a determination on how much tax to withhold, please review this link from the Irs.it is a form for you to submit to your W2 employer to withhold more taxes..  There is also a worksheet to help you determine how much tax to withhold.  i don't have one of these for your 1099R but if you complete the worksheet in the W2, you may get an idea on how much tax to withhold on your 1099R as well. Then you can contact the trustee for the pension plan to withhold more tax.