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

Question

Quizplus · Accepted Answer

Distributions from traditional defined contribution plans, such as a 401(k), are fully taxable as ordinary income when withdrawn. This is because contributions to the plan were most likely made on a pre-tax basis, meaning they were deducted from the individual's taxable income in the year they were made. As a result, any distributions from the plan are subject to income tax in the year they are received.

Which of the Following Best Describes Distributions from a Traditional