Internal Revenue Service United States Department of the Treasury
Level Basic Intermediate Advanced Military International

Income — Retirement Income; Form 1040, Lines 15-16

Retirement Plan Distributions

Before-Tax or After-Tax Contributions

Retirement plans are funded by either "before-tax" or "after-tax" contributions.

  • Before-tax simply means that the employee did not pay taxes on the money at the time it was contributed, that is, the taxpayer has no cost basis in the plan.
  • After-tax means the employee paid taxes on the money when it was contributed, that is, the taxpayer has a cost basis in the plan.

If the taxpayer made all contributions to a plan with before-tax dollars, the entire distribution will be fully taxable. The funds are taxed at the time of the distribution because neither the contributions nor the earnings/investment gains were previously taxed. This is common in 401(k) and Thrift Savings plans.

Tip

If the taxpayer did not contribute to the retirement plan, all the distributions are fully taxable.