What this line means
The taxable portion of your pension and annuity distributions from line 5a. For most 401(k) and pension distributions funded entirely with pre-tax money, this equals line 5a — it is all taxable. If you have after-tax basis in your plan, or if you did a rollover, line 5b will be less than 5a.
Does this apply to you?
- You took a fully taxable distribution from a pre-tax 401(k) or pension — 5b equals 5a
- You did a direct rollover from one retirement account to another — 5b is zero
- You receive pension payments that include a return of your after-tax contributions
- You received an annuity payment and need to calculate the exclusion ratio for the nontaxable portion
Easy to overlook
The Simplified Method for pension taxation If you contributed after-tax money to your pension plan, you use the Simplified Method to calculate the tax-free portion of each payment. This spreads your after-tax contributions evenly over an expected number of payments based on your age at retirement. Many retirees skip this calculation and report their entire pension as taxable, overpaying for years. 1 IRS Publication 575 — Pension and Annuity Income
Early distribution penalty is separate If you are under 59½ and took a distribution, the 10% early distribution penalty is not calculated on this line. The taxable amount goes on 5b, and the penalty gets added later on Schedule 2. Filers sometimes try to add the penalty to line 5b, which overstates their taxable income. 2 General filing pattern — early distribution penalties missed
Watch out for this
Trusting the taxable amount on Form 1099-R Box 2a without verifying it. Plan administrators sometimes leave Box 2a blank or enter the total distribution amount, even when a portion is nontaxable. If you have after-tax contributions or completed a rollover, you are responsible for calculating and reporting the correct taxable amount on line 5b.
Footnotes
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IRS Publication 575, Pension and Annuity Income. https://www.irs.gov/pub/irs-pdf/p575.pdf ↩
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IRS Form 1040 Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩