Under what condition is a pension fully taxable?

Under what condition is a pension fully taxable?

• A. When the taxpayer makes after-tax contributions.
• B. When all pre-tax amounts have been recovered in previous years.
• C. When there are no after-tax contributions by the taxpayer.
• D. Both B and C.

Answer: (D)

A pension is fully taxable when there are no after-tax contributions made by the taxpayer. In this case, the entire amount received from the pension represents income that has never been taxed, therefore it is subject to taxation upon distribution. Additionally, when all pre-tax amounts have been recovered in previous years, any subsequent distributions will also be considered fully taxable if there are no after-tax contributions to offset that income. This combination of conditions means that all disbursements from the pension plan would count as taxable income to the recipient. Thus, if a taxpayer has only made pre-tax contributions, any withdrawals or distributions received upon retirement will be fully taxable as income. Therefore, both the absence of after-tax contributions and the recovery of all pre-tax amounts in prior years lead to the conclusion that the pension is fully taxable.

A pension is fully taxable when there are no after-tax contributions made by the taxpayer. In this case, the entire amount received from the pension represents income that has never been taxed, therefore it is subject to taxation upon distribution.

Additionally, when all pre-tax amounts have been recovered in previous years, any subsequent distributions will also be considered fully taxable if there are no after-tax contributions to offset that income. This combination of conditions means that all disbursements from the pension plan would count as taxable income to the recipient.

Thus, if a taxpayer has only made pre-tax contributions, any withdrawals or distributions received upon retirement will be fully taxable as income. Therefore, both the absence of after-tax contributions and the recovery of all pre-tax amounts in prior years lead to the conclusion that the pension is fully taxable.