Decoding Retirement: A Detailed Look at Retirement Distributions Reported on Tax Returns

83 Pages Posted: 1 Mar 2020

See all articles by Peter J. Brady

Peter J. Brady

Investment Company Institute

Steven Bass

Investment Company Institute

Date Written: December 13, 2019

Abstract

This paper uses data that combine retirement distributions reported by taxpayers on tax returns with information reported by the payers of those distributions on information returns. With the combined data we can allocate distributions reported on Form 1040 by the detailed distribution codes reported on Form 1099-R. This allows us to, for example: distinguish nontaxable rollovers from nontaxable Roth distributions or nontaxable basis; and distinguish taxable early distributions from taxable normal distributions, taxable Roth conversions, or taxable distributions related to death or disability.

This paper addresses the question of how leakage should be defined when using tax data. Our analysis indicates that penalized distributions, which represent only about half of taxable distributions received by individuals younger than 55, are a reasonable approximation for leakage. For taxpayers younger than 55, unpenalized taxable distributions include payments that are not typically considered to be leakage. These include, for example, DB plan benefits paid to retired military, public safety officers, and other government employees; and distributions made after an employee or IRA owner dies or becomes disabled.

The paper also examines retirement distributions more generally, looking across all age groups. We find that receipt of retirement distributions is widespread and the amounts distributed are substantial. Among taxpayers of all ages in 2010, 28 percent received gross distributions — either directly or through a spouse — and 26 percent received non-rollover distributions. Incidence increases dramatically with age, with nearly 60 percent of taxpayers age 59 to 69 and nearly 85 percent of taxpayers age 70 or older receiving non-rollover distributions. Among taxpayers 59 or older with distributions, non-rollover distributions average $20,000 per person. Overall, taxpayers age 59 or older received 80 percent of the dollars distributed through non-rollovers.

Note: This research was conducted as part of the Statistics of Income Joint Research Program. Views presented are those of the authors and do not necessarily represent the views of the Internal Revenue Service or the views of the Investment Company Institute or its members.

Keywords: Retirement income, pensions, annuities, IRAs

JEL Classification: H24, J26, J32

Suggested Citation

Brady, Peter J. and Bass, Steven, Decoding Retirement: A Detailed Look at Retirement Distributions Reported on Tax Returns (December 13, 2019). Available at SSRN: https://ssrn.com/abstract=3529682 or http://dx.doi.org/10.2139/ssrn.3529682

Peter J. Brady (Contact Author)

Investment Company Institute ( email )

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202-326-5924 (Fax)

HOME PAGE: http://www.ici.org

Steven Bass

Investment Company Institute ( email )

1401 H Street, NW
Washington, DC 20005
United States

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