Question

Upon retirement, all distributions from defined benefit plans are taxable as (1) (2).

a) Ordinary Income
b) Capital Gains
c) Tax-Free
d) Dividends

Answer 1

Distributions from defined benefit plans are classified as ordinary income for tax purposes, which is different from other retirement savings vehicles like 401(k)s and 403(b)s.

Step-by-step explanation:

Upon retirement, all distributions from defined benefit plans are taxable as ordinary income. Unlike defined contribution plans such as 401(k)s and 403(b)s where the employer and employee both contribute and the investments are tax deferred, defined benefit plans provide retirees with a fixed income. This type of retirement income does not benefit from capital gains treatment or tax-free distribution, and it's not classified as dividends. It's important for retirees to be aware of these tax implications so they can plan accordingly.