A 401(k) plan is a retirement savings plan available from many for-profit companies. A 403(b) plan is a retirement savings plan for religious leaders and many public school employees, as well as those who work for nonprofit organizations. A 457(b) plan is for local and state government employees, as well as highly compensated employees at tax-exempt organizations such as charities, non-profit hospitals, and unions.
Annuity Payments
There are four main categories of annuities from which you might receive payments: You should leave line 5a blank if your pension and annuity payments were fully taxable. Enter the total amount of those payments on line 5b instead.
Federal Distribution Payments and Foreign Pension Payments
Distributions from the Federal Employees’ Retirement System or its predecessor, the Civil Service Retirement System, would also be entered on line 5a, as would money from a foreign pension plan. Distributions from a Thrift Savings Plan would be entered on line 5a as well. This is the equivalent of a 401(k) for federal workers. For the 2021 tax year, Line 4a is for total IRA distributions, and line 4b is for the taxable amount of those distributions for the 2021 tax year.
Who Uses Line 5a on Form 1040?
Anyone who has received pension or annuity payments that are not fully taxable in the tax year would use line 5a on Form 1040. You should receive a 1099-R from all of the firms managing those retirement accounts.
Using Form 1040-SR
Total pension and annuity payments are also reported on line 5a of Form 1040-SR, the income tax return designed for taxpayers who are age 65 and older. Taxable pension and annuity payments are reported on line 5b of this form as well. Form 1040-SR uses larger print than the standard 1040. It has a standard deduction chart that’s easier to read and use.
Using Form 1040-NR
Filers of Form 1040-NR for U.S. nonresidents would use line 17a to report total pension and annuity income in previous years. They would use line 17b to report taxable pension and annuity income, but this form was also redesigned for tax years 2020 and 2021, so those filers will now use lines 5a and 5b, as well. The following types of retirement income should be reported on line 1 of Form 1040 rather than on line 5a: Corrective distributions of excess salary deferrals or other excess contributions to retirement plans and payments from disability pensions received before you’ve reached the minimum age for retirement benefits as set by your employer.
Taxation of Pension and Annuity Payments
The IRS considers your payments to be fully taxable if you didn’t contribute anything to your pension or annuity, or you received all your cost back tax-free in a prior year. Military retirement payments shown on a Form 1099-R are also considered to be fully taxable. Enter the total amount on Line 5b if your Form or Forms 1099-R show the taxable portion of your pension and/or annuity payments. You must calculate it using either the General Rule or the Simplified Method if the taxable portion isn’t given. The General Rule is explained in IRS Publication 939, General Rule for Pensions and Annuities.
Calculate Using the Simplified Method
You must use the IRS-backed Simplified Method in most cases. It can be found in the Form 1040 and Form 1040-SR instructions. You must use it if your annuity starting date was after July 1, 1986, if you used the Simplified Method in the prior tax year, or if your annuity starting date was after November 18, 1996. Both of the following conditions must apply as well: Your annuity’s starting date is the later of the first day of the first period for which you received a payment, or the date the plan’s obligations became fixed. Your annuity provides guaranteed payments if a minimum number of payments or a minimum amount is payable, even if you and any survivor don’t live to receive the minimum. You’re entitled to less than five years of guaranteed payments if, barring death, the minimum amount is less than the total amount of the payments you’re to receive during the first five years after payments begin. The Simplified Method Worksheet is on page 29 of the 2021 instructions for Form 1040 and 1040-SR. Calculate the taxable amount of each one separately if you received payments from more than one partially taxable pension or annuity. Report the total on line 5b.
