Retirement income tax in the US is based on different categories and factors. In order to enjoy long term benefits from your retirement plans, you need to have an idea of the various retirement income taxes that are applicable in various states.
Federal income tax for retirement is broadly divided on three groups: retirement plans, pensions and annuities. In most cases, retirement income tax is based on:
There are more or less similar retirement income tax treatments for both pensions and annuities. According to the purpose of taxation, a pension consists of some particular payments that is paid to you after retirement. The pensions are usually linked with benefits that you receive from the employer as per your years of service and the compensation you used to get while working.
The benefits that you get from retirement or disability
- When you buy a commercial annuity plan
- When you receive annuities or pensions from a particular pension plan that is offered by the employer.
On the other hand, annuity consists of a series of payments which is made under a contract. The payment is made on regular intervals over a period of one year. The mode of payment can be fixed or variable according to the contract.
Pensions and annuities are classified according to the period or the span on which the benefits are paid, whether they are fixed or variable and also about who receives the benefits. Some of the common forms on annuities are:
Fixed period annuities: In this type of annuities, you are liable to receive fixed amounts of funds at regular intervals over a particular period of time.
Single Life annuities: As a beneficiary, you are liable to receive fixed amounts of money at regular intervals until you die.
Joint or survivor annuities: In the form of annuity, you as the first annuitant or beneficiary will be receiving fixed amounts at regular intervals all through your life. After your death, the second annuitant or the designated beneficiary will be receiving the money. However, the amount that will be paid to the second annuitant may not be the same as the first annuitant used to receive.
Variable annuities: The payments that you receive may have different amounts. They can range from a specific period of time to a full lifetime. The amount of profit that you receive is dependant on the profits of the pension or the annuity and mutual funds.