Tax Season May Be Over — But Here’s What to Know About Your Retirement Plan

Tax season can bring up a lot of questions—especially when it comes to how your retirement plan fits into the mix. This quick guide covers some of the most common tax-related questions retirement plan participants tend to ask this time of year. While everyone’s situation is different, it’s always a good idea to review how your retirement plan activity can affect your taxes and start planning for the year ahead. Here are a few quick reminders to keep in mind:

1. Are my retirement plan contributions tax deductible?

If you contribute to a traditional 401(k), 403(b), or similar employer-sponsored plan, those contributions are typically made pre-tax, which may lower your taxable income for the year. Roth contributions, on the other hand, are made with after-tax dollars and do not reduce your current taxable income.

2. How do pre-tax vs. Roth contributions affect my taxes?

Pre-tax contributions reduce your taxable income now, but distributions in retirement are generally taxed as ordinary income. Roth contributions don’t offer a current-year tax break, but qualified distributions (such as those taken after age 59 1⁄2 and at least 5 years after the first contribution) are typically tax-free.

3. Do I owe taxes if I rolled money over into another plan or IRA?

A direct rollover from one retirement plan to another—or into an IRA—typically is not taxable. However, if you received a check and didn’t deposit it into another retirement account within 60 days, that amount may be subject to taxes and possibly penalties.

4. I took a loan from my retirement plan—does that affect my taxes?

Most retirement plan loans are not considered taxable as long as they’re repaid on schedule. If a loan is defaulted on or not repaid, it may be treated as a distribution, which could trigger income taxes and early withdrawal penalties depending on your age.

5. I took a withdrawal—how is that taxed?

Withdrawals from traditional retirement accounts are typically taxed as ordinary income. If you’re under age 59½, an early withdrawal penalty may also apply. Roth account withdrawals may be tax-free if they are qualified distributions.

6. Will I receive any tax forms related to my retirement plan?

You may receive a Form 1099-R if you took a distribution or loan deemed a distribution. This form reports the amount withdrawn and any taxable portion. If you didn’t take any action with your account last year, you may not receive a tax form.

7. Do I need to take an RMD (Required Minimum Distribution)?

If you're 73 or older and no longer working, you may be required to withdraw a minimum amount from your retirement account each year. RMDs are generally taxable and must be taken by the deadline to avoid penalties. If you're still working, some exceptions may apply depending on your plan.

8. What happens if I exceed contribution limits?

If you contribute more than the IRS limits allow for your retirement plan, the excess may be subject to taxes and penalties. It’s important to correct any excess contributions by the IRS deadline to avoid additional tax consequences.

9. I changed jobs—do I need to do anything with my retirement savings for tax purposes?

If you changed jobs last year and left a retirement plan behind, you may want to review whether you received any forms related to distributions or rollovers. Keeping records of any movement between accounts is helpful during tax time.

Typically, though, you may have a few options to choose from, such as:

• Keeping your savings with your previous employer’s plan

• Transferring your 401(k) from your previous plan to your new employer’s plan

• Rolling it over into an individual retirement account (IRA)

• Or, cashing it out

Keep in mind that if you have the option to cash out and choose to go that route, the cash will be considered income and may be subjected to local, state, or federal taxes. If you leave your employer before the year you turn 55 and are younger than 59½, you will be required to pay an early withdrawal penalty of 10%, which doesn’t include taxes.

10. Who can I talk to if I’m not sure how something impacts my taxes?

Tax season can bring up a lot of questions, especially when it comes to how your retirement savings fit into the picture. If you’re unsure about how your retirement account activity might affect your taxes, consider speaking with a qualified tax advisor. They can help you navigate your specific situation and filing needs.

The RetireAdvisers℠ team is here to help you better understand your retirement plan and the options available to you. If something in this guide sparked a question, don’t hesitate to reach out—we’re always happy to talk through your plan and help you feel more confident about your retirement.

The concepts expressed herein represent the views and opinions of Pension Consultants, Inc., and are not intended as legal, tax, or investment advice for any specific individual, account, or plan.