Your understanding of when you report the income and pay the taxes is incorrect.,
retirement a/c distribution? where did you read this?
from IRS pub 590-B
Distributions Fully or Partly Taxable
Distributions from your traditional IRA may be fully or
partly taxable, depending on whether your IRA includes
any nondeductible contributions.
Fully taxable. If only deductible contributions were made
to your traditional IRA (or IRAs, if you have more than
one), you have no basis in your IRA. Because you have
no basis in your IRA, any distributions are fully taxable
when received. See Reporting and Withholding Requirements for Taxable Amounts, later.
Partly taxable. If you made nondeductible contributions
or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. These
nondeductible contributions aren't taxed when they are
distributed to you. They are a return of your investment in
Only the part of the distribution that represents nondeductible contributions and rolled over after-tax amounts
(your cost basis) is tax free. If nondeductible contributions
have been made or after-tax amounts have been rolled
over to your IRA, distributions consist partly of nondeductible contributions (basis) and partly of deductible contributions, earnings, and gains (if there are any). Until all of
your basis has been distributed, each distribution is partly
nontaxable and partly taxable.