Which of the following best describes distributions from a defined benefit plan?
A)Distributions from defined benefit plans are fully taxable as ordinary income.
B)Distributions from defined benefit plans are partially taxable as ordinary income and partially nontaxable as a return of capital.
C)Distributions from defined benefit plans are fully taxable as capital gains.
D)Distributions from defined benefit plans are partially taxable as capital gains and partially nontaxable as a return of capital.

Question

Quizplus · Accepted Answer

Distributions from defined benefit plans are fully taxable as ordinary income. This is because contributions to the plan were likely made on a pre-tax basis, resulting in taxes being deferred until distribution. Therefore, when funds are distributed, they are treated as ordinary income and subject to taxation at the individual's ordinary income tax rate.

Which of the Following Best Describes Distributions from a Defined