Retirement Income on Form 1040: A Tax Preparer's Guide

For tax preparers. Federal rules only. Based on the 2025 forms and instructions and 2026 figures. Updated October 8, 2026.

Retiree returns look simple: an SSA-1099, a couple of 1099-Rs, the standard deduction. In practice they are where many errors hide: taxable amounts taken straight from Box 2a when the client has basis, rollovers reported as income, QCDs that never make it off line 4b, missing exceptions to the 10% penalty, and missed RMDs that nobody asks about. This guide goes line by line through what to check. For a client-facing overview of the retirement system itself, see our complete retirement guide.

State taxes: this article covers federal rules only. State treatment of pensions, IRA distributions and Social Security varies widely; read the law and instructions of the client's state. (Florida has no personal income tax.)

Contents

• 1. The intake interview
• 2. SSA-1099 and taxable Social Security
• 3. Form 1099-R box by box
• 4. Box 7 distribution codes
• 5. Pensions and annuities: basis and special exclusions
• 6. IRAs: basis, conversions, rollovers, QCDs
• 7. The 10% additional tax and its exceptions
• 8. RMDs: who, when, how much
• 9. Missed RMDs: Form 5329, Part IX and the waiver
• 10. Deductions and credits for retirees
• 11. Withholding, estimates and the underpayment penalty
• 12. Common mistakes checklist
• Official sources

1. The Intake Interview

Ask, don't assume. Clients rarely volunteer the facts that change a retirement return:

• Date of birth for both spouses (RMD age 73 vs. 75, 59½, 55, 70½ for QCDs, 65 for the senior deduction).
• Every account they own, including old 401(k)s from former employers and inherited IRAs. Did they take the RMD from each one that needs it?
• Did any money go back into an IRA or plan within 60 days? Was anything paid directly to a charity from an IRA?
• Were nondeductible IRA contributions ever made? Ask for prior-year Forms 8606.
• Did they make after-tax contributions to a pension (government plans often required them)?
• Did they retire this year, and at what age? (Rule of 55, mixed W-2 and pension year.)
• Medicare start date and any HSA contributions in the same year.
• Were they a public safety officer (police, fire, EMS) in a governmental plan?
• Any foreign pension or foreign retirement account (treaty position, FBAR / Form 8938).
• Marketplace (ACA) coverage before Medicare: Form 1095-A.

2. SSA-1099 and Taxable Social Security

Taxable amount (line 6b). Use the Social Security Benefits Worksheet in the Form 1040 instructions (or Pub. 915). Provisional income = modified AGI (AGI without Social Security, plus tax-exempt interest and certain excluded foreign income) + ½ of net benefits. Base amounts: $25,000 single/HoH/QSS, $32,000 MFJ, $0 for MFS who lived with the spouse at any time during the year (enter "D" to the right of line 6a for MFS who lived apart all year). The maximum taxable share is 85%.

• Lump-sum back benefits for prior years: the client may elect to figure the taxable part as if received in those years (Pub. 915 worksheets) and check the box on line 6c. It often lowers tax after a delayed SSDI award.
• Repayments larger than the year's benefits: if the excess repaid is $3,000 or less, there is no deduction for it. Above $3,000, the client claims either an itemized deduction (Schedule A, line 16) or a credit under the claim-of-right rules (IRC §1341), whichever is better.
• SSI is not Social Security and is never reported. Railroad Retirement Tier 1 (RRB-1099) is treated like Social Security; Tier 2 (RRB-1099-R) like a pension.
• Remember: the One Big Beautiful Bill Act did not change the taxation of Social Security. It added the senior deduction (section 10).

3. Form 1099-R Box by Box

Line 4 vs. line 5: if the IRA/SEP/SIMPLE box is checked, the distribution goes on lines 4a/4b; otherwise on 5a/5b.

4. Box 7 Distribution Codes

Telling Traditional from Roth: read the IRA/SEP/SIMPLE box together with the code. Q, J and T are Roth IRA only. B is a Roth account inside a plan. H is a Roth plan account rolled to a Roth IRA. Code 7 (or 1/2) with the IRA box and no B is a traditional IRA. Code 7 alone does not prove a traditional account: pensions, annuities and some Roth plan distributions (7 with B) use it too. A traditional-to-Roth IRA conversion comes on the 1099-R from the traditional IRA (taxable), and the receiving Roth IRA reports it in Box 3 of Form 5498.

5. Pensions and Annuities: Basis and Special Exclusions

• Fully taxable if the employee made no after-tax contributions: line 5b = Box 2a.
• After-tax contributions (Box 9b / Box 5): for annuity starting dates after November 18, 1996, use the Simplified Method Worksheet in the 1040 instructions: cost ÷ expected number of payments (by age at the annuity start date, or combined ages for a joint and survivor annuity) = tax-free part of each payment, until the cost is fully recovered. Keep the worksheet in the client's file for later years. If the retiree dies before recovering the full cost, the unrecovered amount is deductible on the final return.
• Public safety officers: a retired police officer, firefighter, chaplain or member of a rescue squad or ambulance crew can exclude up to $3,000 a year of health, accident or long-term care insurance premiums paid from a governmental plan distribution. Since 2023 the premiums don't have to be paid directly by the plan. Reduce line 5b and enter "PSO" next to it.
• Disability pension before the plan's minimum retirement age: report as wages on line 1h, not on line 5.
• Military retired pay is a pension (1099-R from DFAS); VA disability compensation is not taxable and isn't reported.
• Nonqualified annuities: the exclusion ratio (General Rule, Pub. 939) applies to annuitized payments; withdrawals before annuitization are taxable to the extent of earnings first. Earnings withdrawn before 59½ carry the 10% additional tax (Form 5329) unless an exception applies.
• Lump sums and DROP payouts (for example, Florida FRS DROP): taxable in full unless rolled over. A direct rollover shows code G.

6. IRAs: Basis, Conversions, Rollovers, QCDs

Basis and the pro-rata rule (Form 8606)

If the client ever made nondeductible traditional IRA contributions, every distribution and conversion is partly tax-free. Form 8606, Part I applies the pro-rata rule across all of the client's traditional, SEP and SIMPLE IRAs, using year-end values (Form 5498, Box 5) plus distributions and conversions. Rollovers of pre-tax plan money into an IRA increase the denominator, a common trap for "backdoor Roth" clients. If 8606s were never filed, the basis must be reconstructed; without it, the IRA money is taxed twice.

Roth conversions

• Report the 1099-R from the traditional IRA on line 4a; the taxable part goes on line 4b (Form 8606, Part II if there is basis).
• No 10% tax on a conversion itself; but converted amounts withdrawn within 5 years before 59½ are subject to it (Form 8606, Part III; Form 5329).
• Conversions can't be undone. An RMD for the year must come out first and can't be converted.

Rollovers

• Direct rollover: line 4a or 5a = Box 1, line 4b or 5b = 0, and enter "ROLLOVER" next to it.
• 60-day rollover: the same, for the amount redeposited within 60 days. A partial rollover leaves the rest taxable. If a plan withheld 20% and the client didn't make it up from other funds, the withheld 20% is a taxable distribution (and possibly subject to the 10% tax); the withholding still counts as a payment on line 25b.
• Only one indirect IRA-to-IRA rollover per 12 months, across all IRAs. Trustee-to-trustee transfers are unlimited and generally produce no 1099-R.
• Missed 60 days for a listed reason: the client can self-certify to the receiving institution (Rev. Proc. 2020-46). Keep the letter in the file.
• RMDs are not eligible for rollover. A rolled-over RMD becomes an excess IRA contribution (6% tax, Form 5329 Part III) unless corrected.

Qualified charitable distributions

• Age 70½ or older on the date of the distribution; paid directly from an IRA to a qualifying public charity (not a donor-advised fund, private foundation or supporting organization). Limit $108,000 for 2025 and $111,000 for 2026 per person; one-time QCD to a split-interest entity $54,000 (2025) / $55,000 (2026).
• Reporting: line 4a = full distribution, line 4b = the taxable part after excluding the QCD, and enter "QCD" next to line 4b. No charitable deduction for the QCD amount. Get the charity's written acknowledgment.
• Counts toward the RMD. Not available from active SEP or SIMPLE IRAs or from 401(k)s.
• Anti-abuse rule: deductible IRA contributions made after age 70½ reduce the excludable QCD amount (track the carryforward).

7. The 10% Additional Tax and Its Exceptions

Distributions before 59½ that are included in income carry an additional 10% tax (Schedule 2, line 8) unless an exception applies. If the 1099-R shows code 1 but an exception applies, file Form 5329, Part I: enter the excepted amount on line 2 and the exception number from the instructions (01–23, or 99 for more than one). If code 1 is shown and no exception applies, you can skip Form 5329 and enter the tax directly on Schedule 2, line 8.

Watch for the Rule of 55 trap: it applies only to the plan of the employer the client separated from. If the money was first rolled to an IRA, the exception is lost.

8. RMDs: Who, When, How Much

• Applicable age: 73 for people born 1951–1959; 75 for people born in 1960 or later. (Age 72 applied to those born 1950 or earlier, who are already taking RMDs.)
• Required beginning date: April 1 of the year after the client reaches the applicable age. Later RMDs are due by December 31. Delaying the first one puts two RMDs in one tax year.
• Still-working exception: for the current employer's plan only, if the client is not a 5% owner; never for IRAs.
• No lifetime RMDs: Roth IRAs; designated Roth accounts in plans (from 2024).
• Amount: December 31 prior-year balance ÷ Uniform Lifetime Table factor (Pub. 590-B, Appendix B), or the Joint Life table if the sole beneficiary is a spouse more than 10 years younger. Custodians flag the RMD on Form 5498 (Box 11) and may report the amount (Boxes 12a/12b).
• Aggregation: traditional/SEP/SIMPLE IRAs may be aggregated with each other; 403(b)s with each other; 401(k) and 457(b) plans can't be. Inherited IRAs aggregate only with other IRAs inherited from the same decedent. Each spouse is separate.
• What satisfies it: any distribution during the year (gross, including withholding) and QCDs. Not rollovers or conversions.
• Inherited accounts: most non-spouse beneficiaries have a 10-year rule. If the owner died on or after the required beginning date, annual RMDs in years 1–9 are also required — enforced from 2025. Eligible designated beneficiaries (spouse, minor child of the owner, disabled, chronically ill, not more than 10 years younger) may use life expectancy.

9. Missed RMDs: Form 5329, Part IX and the Waiver

Quick numbers: our free RMD & Missed RMD Penalty Calculator figures the RMD for 2022–2026, the shortfall, the 25% / 10% tax and the Form 5329 entries.

The tax on an excess accumulation (IRC §4974) is 25% of the shortfall, reduced to 10% when the shortfall is corrected within the correction window. The IRS can waive it entirely for reasonable error. There are three ways to handle it: pay the reduced 10%, request a full waiver, or, in some situations, file nothing.

The correction window (10% rate)

The 10% rate applies if, during the correction window, the client (1) takes a distribution of the shortfall from the plan for which the tax was imposed and (2) files a return reflecting the tax. The window ends at the earliest of: the mailing of a notice of deficiency, the assessment of the tax, or the last day of the second tax year that begins after the year the tax is imposed.

How Part IX works (2025 form)

Requesting a full waiver

1. Have the client take the shortfall now. The IRS expects the error to be remedied; a waiver request without the corrective distribution is weak.
2. Complete lines 52a/52b and 53a/53b as instructed.
3. Enter "RC" and the amount of the shortfall you want waived, in parentheses, on the dotted line next to line 54a and/or 54b. Subtract that amount from the shortfall and enter the result (times the rate) on line 54a/54b. For a full waiver the result is zero.
4. Complete line 55 (pay any tax that remains).
5. Attach a statement of explanation: why the shortfall happened and what has been done to fix it.

The IRS reviews the request; if it is denied, the client gets a notice for the tax. Reasonable error typically includes serious illness or hospitalization, the death of a spouse, a custodian or advisor error, a move or confusion among several accounts, or misunderstanding a new rule (for example, which age applies). Document what you can.

Sample statement: "Taxpayer, age 74, did not take the full 2025 required minimum distribution from her IRA at [custodian] because she was hospitalized from October through December 2025 and the automatic distribution she had set up failed after the custodian changed its systems. The shortfall of $6,412 was distributed on March 3, 2026, as soon as the error was discovered (see attached confirmation). The taxpayer has re-established automatic annual distributions. We request a waiver of the entire excise tax under IRC §4974(d)."

Where and how to file

• Current year: attach Form 5329 to the Form 1040 and e-file normally, with the explanation as a PDF attachment.
• Prior year, return already filed, no other changes: file that year's version of Form 5329 by itself, on paper, at the address where the client would file a 1040, with the client's address on page 1 and signature and date on page 3. A standalone Form 5329 can't be e-filed.
• Prior year with other changes: file Form 5329 with Form 1040-X.
• File one Form 5329 per person. If both spouses missed RMDs, each needs a separate form.
• For an inherited account, the beneficiary files Form 5329.

When not to file Form 5329 for an RMD

• No RMD was required: the client hadn't reached the applicable age (check 73 vs. 75 by birth year), the still-working exception applied, the account is a Roth IRA, or a designated Roth account in 2024 or later.
• The first-year RMD was taken by April 1 of the following year.
• Year-of-death RMD: if the owner died before taking the full RMD for that year, the beneficiary has an automatic waiver if the distribution is taken by the due date (including extensions) of the beneficiary's tax return for that year.
• Inherited IRAs under the 10-year rule, 2021–2024: the IRS waived the tax for annual RMDs that weren't taken (Notices 2022-53, 2023-54 and 2024-35). No Form 5329 is needed; if the tax was already paid, the beneficiary may request a refund.
• 2020: RMDs were waived entirely under the CARES Act.

Statute of limitations: under SECURE 2.0 (§313), the 3-year period for assessing the §4974 tax starts when the client files the Form 1040 for the year, even if no Form 5329 was filed (6 years for the excess-contribution tax). For older years the IRS may be time-barred. Discuss this with the client before filing old Forms 5329, and document the analysis.

10. Deductions and Credits for Retirees

• Senior deduction (2025–2028): $6,000 for each taxpayer or spouse who is 65 or older by year-end. Reduced by 6% of MAGI above $75,000 ($150,000 MFJ). Requires an SSN valid for employment; married couples must file jointly. It is taken whether the client itemizes or not. MAGI = AGI plus excluded foreign income — which means IRA withdrawals and conversions directly erode it.
• Charitable deduction for non-itemizers (from 2026): up to $1,000 single / $2,000 MFJ for cash gifts.
• Medical expenses (Schedule A, above 7.5% of AGI): Medicare Part B, D, Medigap and Advantage premiums, and age-based limits for long-term care premiums.
• Self-employed health insurance deduction: Medicare premiums qualify if the client has net self-employment income.
• Credit for the Elderly or Disabled (Schedule R): check it, but nontaxable Social Security and the low AGI limits usually reduce it to zero.
• Form 1040-SR is available at 65+; same lines as Form 1040.
• Filing requirement: gross income (excluding nontaxable Social Security) at or above the standard deduction including the age add-on, for example $18,150 for a single person 65+ or $35,500 for MFJ both 65+ in 2026.

11. Withholding, Estimates and the Underpayment Penalty

• Withholding sources: Social Security (W-4V: 7, 10, 12 or 22%), periodic pensions (W-4P), nonperiodic payments and IRAs (W-4R: 10% default), and a mandatory 20% on eligible rollover distributions paid to the participant.
• Safe harbors (Form 2210): no penalty if payments are at least 90% of this year's tax or 100% of last year's (110% if prior-year AGI was over $150,000), or if the balance due is under $1,000.
• Withholding is treated as paid evenly through the year unless the client elects otherwise. A large withholding on a December IRA distribution can cure an underpayment for the whole year. Estimated payments are applied when paid.
• If income came in unevenly (for example, a large conversion in December), the annualized income installment method (Form 2210, Schedule AI) can reduce the penalty.
• For new retirees, also consider the waiver of the penalty for taxpayers who retired after age 62 in the current or prior year and underpaid due to reasonable cause (Form 2210 instructions).

12. Common Mistakes Checklist

1. Taking Box 2a for an IRA when the client has basis (no Form 8606).
2. Reporting a direct rollover (code G or H) as taxable, or a 60-day rollover without "ROLLOVER".
3. A QCD left fully taxable on line 4b (custodians often don't use code Y).
4. Code 1 accepted without asking about the Rule of 55, 72(t), disability or medical expenses.
5. The 20% withheld on a plan cash-out ignored: it is both income (if not replaced) and a payment.
6. Social Security for MFS who lived together figured with the $25,000 base instead of $0.
7. Medicare premiums on the SSA-1099 not used for Schedule A or the self-employed health deduction.
8. Senior deduction missed, or claimed on an MFS return.
9. Missed RMDs not asked about, especially from old 401(k)s and inherited IRAs.
10. HSA contributions after Medicare started (excess contribution; Part A may be retroactive up to 6 months).
11. The pension's Simplified Method worksheet not carried forward from the prior year.
12. PSO exclusion overlooked for retired police and firefighters.

This article is general information for tax professionals, not legal advice. Always check the current year's forms and instructions; line numbers and amounts change.

Official Sources

• IRS, Instructions for Form 5329 (2025)
• IRS, Instructions for Forms 1099-R and 5498
• IRS, Instructions for Form 8606
• IRS Publication 575, Pension and Annuity Income
• IRS Publication 590-B, Distributions from IRAs
• IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits
• IRS Publication 554, Tax Guide for Seniors
• IRS, Required minimum distributions FAQs
• IRS, Exceptions to tax on early distributions
• IRS, Rollovers of retirement plan and IRA distributions
• IRS Notice 2024-35 (inherited IRA RMD relief)
• IRS Rev. Proc. 2025-32, 2026 inflation adjustments
• IRS, One Big Beautiful Bill Act: deductions for seniors