Final answer:
Payments to a qualified plan annuitant with no cost basis at retirement are fully taxable as income. This is because the contributions were made pre-tax and thus all distributions are taxed as ordinary income upon withdrawal.
Step-by-step explanation:
If a qualified plan annuitant had no cost basis, payments at retirement would be fully taxable as income. When an individual contributes to a qualified retirement plan such as a traditional IRA or 401(k), they often receive a tax deduction for the contributions, which means the money put into the plan has not been taxed. If, however, all contributions were made with pre-tax dollars and the annuitant had no after-tax contributions, which would be described as having no cost basis. As a result, upon retirement, when the annuitant starts receiving distributions, those payments are fully taxable as they would be considered ordinary income. It is important for an individual to keep track of their cost basis in their retirement accounts to understand the tax implications of their retirement distributions.