Retirement Account Taxes
Planning for Retirement Account Taxes
Most distributions from your MissionSquare accounts are subject to federal and possibly state and local income taxes. Understanding and planning for those taxes can help you manage a key expense.
Taxes Withheld When You Request a Distribution
For most 401(a) and 457(b) plan account distributions, MissionSquare is required to withhold 20% for federal taxes. Keep in mind the following:
- You may instruct us to withhold a higher amount, but not a lower amount.
- Exception: For IRS required minimum distributions and emergency or hardship withdrawals, the default federal withholding rate is 10% and you may instruct us not to withhold any taxes.
- State income tax withholding varies for each state. Some states require us to withhold taxes, others make it optional, and some do not tax retirement account distributions at all.
- Withholding rules apply to distributions that are payable directly to you even if you intend to roll over to another eligible retirement account. However, a direct rollover or transfer from one retirement account to another is not a taxable event.
Taxes withheld from your plan distributions are generally estimates and may not reflect the exact amounts you owe. Depending on your individual tax situation, you could owe more or less, which will be reconciled when you file your tax return. Regardless of your withholding election, including choosing not to withhold taxes, you are still responsible for paying any federal and state income taxes due.
Some Distributions Are Not Subject to Taxes
After-tax Roth contributions — and the associated earnings from qualified distributions — are not subject to income tax. This applies to 457(b) and 401(k) plan Roth assets and Roth IRAs.
After-tax contributions to 401(a) plans and non-deductible contributions to IRAs are also not subject to income tax when distributed. However, any associated earnings are taxable upon distribution.
Penalty Taxes
You may be subject to an additional 10% penalty tax if you take a distribution before reaching age 59 1/2. Exceptions include:
- Contributions made to a 457(b) plan and any associated earnings, regardless of your age. Note: Assets rolled over or transferred into a 457(b) plan from a non-457(b) plan may be subject to penalty taxes.
- Distributions from a retirement plan sponsored by an employer you left in the year you turned age 55 or older.
Additional exceptions apply to 401(a) plans and IRAs. For more information, view the Special Tax Notice Regarding Plan Payments and the IRS website.
MissionSquare does not withhold penalty taxes.
Reporting Taxes – Tax Forms
MissionSquare will report the taxable amount of any retirement account distribution you take on your IRS Form 1099-R. This form is provided to you and the IRS no later than Jan. 31 of the following year.
To view, print, and save tax forms, log in to your account and select “View Statements & Confirms” from the home page.
MissionSquare does not provide tax advice. You are encouraged to consult a tax professional to review your specific tax situation.
Helpful Links
Detailed information about how your retirement accounts are taxed.
Special Tax Notice Regarding Plan Payments
Managing taxes for your retirement assets and income.
Information about tax planning and other retirement topics is available in our 10 Question Retiree Guide in the Retirement Education Center.