Though you might not be working when you receive distributions from your pension, you may still owe income taxes on the withdrawals. If you're using Form 1040A, line 12a is only used if all or a portion of your pension and annuity distribution isn't taxable. Neither Form 1040 nor Form 1040EZ has a line 12a.
If you're withdrawing from a pension or annuity, you pay taxes on the entire distribution if you didn't contribute to the cost, including making only tax-deductible contributions, or you already recovered your entire cost basis. For example, if the money in your 401(k) plan is from your tax-exempt contributions and your employer's tax-exempt contributions on your behalf, your entire distribution is taxable. If this is the case, enter the entire amount on line 12b -- you don't report anything on line 12a.
If you have a cost basis for your distribution, such as if you've made nondeductible contributions to a pension, you report the entire distribution on line 12a and the taxable portion on line 12b. Only part of your distribution is taxable if you're taking an early withdrawal from a designated Roth account, like a Roth 401(k) or Roth 403(b). Your early distributions are prorated between the contributions in the account, which aren't taxable distributions, and your earnings, which count as taxable income when distributed.
If you're taking a completely tax-free distribution, such as a qualified withdrawal from a designated Roth account, you report the entire amount on line 12a and $0 on line 12b. To take a qualified withdrawal, your account must be at least five years old and you must be either 59 1/2 or permanently disabled.
Line 12a also has a use if you're rolling over money from one retirement account to another. Line 12a reports the total amount of the distribution and line 12b reports the taxable portion, if any. Next to line 12b, write "rollover." If you're rolling the money from one tax-deferred account to another, such as from a 401(k) to another 401(k) or traditional IRA, the entire rollover is tax-free. But, if you're converting money to a Roth account, such as moving money from your 401(k) to your Roth IRA, the distribution is taxable so the entire amount goes on both lines, 12a and 12b.
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