Posted by MarkB_MI on January 31, 2015 at 02:19:04 from (70.194.0.224):
In Reply to: Retirement taxes posted by vscummins on January 30, 2015 at 17:26:04:
Whether it's a retirement plan, 401k or IRA, it's pretty straightforward: if your contributions were taxed when you put them in, you don't pay tax on the amount of AFTER-TAX contributions. But anything above the after-tax contributions, including any pre-tax contributions, is subject to tax.
I assume none of her retirement is in a Roth IRA; the rules for a Roth IRA are different.
If we are talking about a defined benefit pension plan, she will probably have multiple options for how to take her pension. Right now, the interest rate used to calculate lump-sum distributions is quite low (~1 percent). The lower the interest rate the higher a lump-sum distribution will be relative to an annuity. For this reason she should consider taking a lump sump (or the shortest possible period certain distribution) and roll her taxable distributions into an IRA. That way she doesn't pay taxes until she actually draws the money out of the IRA.
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