Individual retirement account distributions are income. However, in some instances, money you take from your IRA may not count as income. It depends which government agency you're dealing with. For example, IRA distributions may or may not be taxable income, depending on what type of IRA you have and the circumstances under which you withdraw the money.
Taxable IRA Distributions
Three types of IRAs -- traditional, savings incentive match plan for employees, or SIMPLE, and simplified employee pension, or SEP -- are known as pretax IRAs because you fund them with tax-free contributions. Distributions you take from these accounts are subject to your income tax rate. If you take distributions before age 59 1/2, they are subject to income tax, plus a 10 percent early withdrawal penalty. You may be able to avoid the early withdrawal penalty if you qualify for an exception, such as putting a down payment on your first home. However, you would still owe income taxes on the amount you withdraw.
Roth IRA Distributions
There are a variety of ways to avoid income taxes on Roth IRA withdrawals. If you wait until age 59 1/2 and your account has been open at least five years, you do not owe income taxes on Roth IRA distributions. Also, you may withdraw the entire amount of your Roth IRA contributions anytime and not pay income taxes. To avoid paying taxes on early withdrawals from your Roth IRA's earnings, your account must have been open for at least five years and you must use the money for a specific purpose such as a down payment on your first home or to support yourself if you become disabled.
Account transfers involve moving amounts between the same type of IRA -- for example, transfers between two Roth IRAs or two pretax IRAs. Internal Revenue Service rules allow you to transfer amounts in IRAs from one trustee to another without paying taxes or penalties. You can ask your IRA trustee to take funds from your current account and move it to an account you established with a new trustee. Amounts you transfer are not considered income.
Roth IRA Rollovers
If you want to move amounts from a pretax IRA, including a SIMPLE, SEP or traditional IRA, into a Roth IRA, you will owe income taxes on the entire amount of the rollover the year you make it. This is because Roth IRA contributions are after-tax -- funded with taxed income. The IRS takes its portion of your pretax contributions when you move them to a Roth IRA.
IRAs and Social Security Benefits
For the purposes of determining your Social Security benefits, the Social Security Administration does not consider IRA distributions. Only work income could diminish your benefits, not money you receive from a Roth or traditional IRA, in addition to a 401k or pension. The SSA may consider IRA income when determining whether you owe taxes on your Social Security benefits if you have a SIMPLE, SEP or traditional IRA. However, the SSA does not consider Roth IRA distributions as income for this purpose.
- IRS Publication 590: Are Distributions Taxable? Traditional IRAs
- IRS Publication 590: Are Distributions Taxable? Roth IRAs
- IRS Publication 590: Can You Move Retirement Plan Assets?
- Fairmark: Tax on Social Security
- IRS Publication 590: Can You Move Amounts Into a Roth IRA?
- Investment Company Institute.org. "The Role of IRAs in US Households' Saving for Retirement, 2019," Page 4. Accessed April 28, 2020.
- Congressional Budget Office.gov. "Increase Individual Income Tax Rates." Accessed April 28, 2020.
- Investment Company Institute.org. "The Role of IRAs in US Households' Saving for Retirement, 2019," Page 35. Accessed April 28, 2020.
- Investment Company Institute. "Ten Important Facts About Roth IRAs," Page 3. Accessed April 28, 2020.
- U.S. News & World Report. "5 Surprising Facts About IRAs." Accessed April 28, 2020.
- Internal Revenue Service. "2021 Limitations Adjusted as Provided in Section 415(d), etc." Accessed Nov. 5, 2020.
- Internal Revenue Service. "2020 Instructions for Forms 1099-R and 5498," Page 7. Accessed April 28, 2020.
- Women's Institute for a Secure Retirement.org. "Spousal IRAs." Accessed April 28, 2020.
- Internal Revenue Service. "Traditional and Roth IRAs." Accessed April 28, 2020.
- Internal Revenue Service. "Publication 590-B (2019), Distributions from Individual Retirement Arrangements (IRAs)." Accessed April 28, 2020.
Diane Kuriluk has been writing about small business solutions, economics and personal finance since 2007 for sites that include Work.com. She is also a professional grant writer for nonprofit organizations. She attended the University of Michigan.