Retirement Tax Forms 'Contradictory and Confusing': Determining whether retirement savings withdraws are taxable, partially taxable or tax-free can be difficult. A lot of retirees get it wrong-and the federal government is doubling down on efforts to correct them. Today, the Treasury Inspector General for Tax Administration (TIGTA) released a new report: " Opportunities Exist to Identify More Taxpayers Who Underreport Retirement Income." As much as $4.2 billion in taxes can be attributed to underreported retirement income, the report says.
Given the magnitude of underreporting, even small improvements in the IRS's examination of tax returns with retirement income could increase taxpayer compliance and generate substantial revenue."
The IRS assesses whether you're correctly reporting taxable retirement income by matching what you put on your 1040 with forms employers or financial institutions send to you and the IRS. That form-1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans-should be your guide for reporting taxable retirement income. But this form can be "contradictory and confusing" the report notes. The IRS has agreed to TIGTA's recommendation that the form be revised to more clearly "clarify taxpayer responsibilities and the amounts to report."
The IRS also says it will engage in more "taxpayer education," but dismissed a recommendation meant to crack down on folks who cash out their retirement accounts and miss the 60-day rollover period for moving the money back into a qualified plan.
"It behooves you to study the rules and keep track of your contributions to retirement accounts-whether they are made on a pre-tax or aftertax basis-to make sure that you don't run into the opposite problem of overpaying tax on retirement income," Forbes editor Ashlea Everling recommends. See AARP's tip-sheet on taxes and retirement here, or visit the Money/Taxes section of the site for all sorts of tax articles and info (including " What's New For Taxes in 2012").
Wednesday Quick Hits:
- Florence Green, the world's last living veteran of World War I, died last weekend in England, two weeks shy of her 111th birthday.
- A federal appeals court ruled that older Americans who receive Social Security cannot opt out of Medicare eligibility.
- A Senate highway bill would generate revenue with a series of tax increases, including raising taxes on retirement savings.
- Is drinking a problem in assisted living facilities?
- A new book by Eric Klinenberg explores "the extraordinary rise and surprising appeal" of living alone-something which 11 million elderly Americans do.
- And Rick Santorum seizes the spotlight by sweeping the Missouri, Colorado and Minnesota primaries.