41 Pages Posted: 29 Mar 2013 Last revised: 29 Jul 2013
Date Written: 2012
Legal and financial analyses abound about various means of saving for retirement and the tax advantages that they present, but very little attention has been paid to how retirement income is generated and the tax consequences that pertain to its generation. This article fills that void by examining the three major sources of retirement income: Social Security, employment-based retirement plans, and personal savings. For each of these sources, this article considers how retirement income is generated, sets forth the applicable federal income tax treatment, and proposes reforms to make the pertinent tax rules more sensible. Among its recommendations are simplifying how Social Security retirement benefits are taxed, bifurcating defined contribution plan withdrawals into capital gains and ordinary income components, repealing certain exceptions to the early distribution penalty, reducing the delayed distribution penalty and adjusting the age at which it is triggered, and changing the residential gain exclusion to avoid unanticipated problems with reverse mortgages.
Keywords: Social Security, income taxation, pensions, defined contribution plans, minimum required distributions annuities, principal residence
Suggested Citation: Suggested Citation
Kaplan, Richard L., Reforming the Taxation of Retirement Income (2012). Virginia Tax Review, Vol. 32, No. 2, pp. 327-366, 2012; Illinois Program in Law, Behavior and Social Science Paper No. LBSS13-23; Illinois Public Law Research Paper No. 13-51. Available at SSRN: https://ssrn.com/abstract=2240494