Taxation of Periodic Payments

This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than 1 year (such as for 15 years or for life). These payments are also known as amounts received as an annuity. If you receive an amount from your plan that isn’t a periodic payment, see Taxation of Nonperiodic Payments, later.

In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments. The amount of each payment that is more than the part that represents your cost is taxable. However, see In- surance Premiums for Retired Public Safety Officers, earlier.

Designated Roth accounts. If you receive a qualified distribution from a designated Roth account, the distribution isn’t included in your gross income. This applies to both your cost in the account and income earned on that account. A qualified distribution is generally a distribution that is:

• Made after a 5-tax-year period of participation; and

• Made on or after the date you reach age 59 ¹ /2, made to a beneficiary or your estate on or after your death, or attributable to your being disabled.

If the distribution isn’t a qualified distribution, the rules discussed in this section apply. The designated Roth account is treated as a separate contract.

Period of participation. The 5-tax-year period of participation is the 5-tax-year period beginning with the first tax year for which a contribution was made to the participant’s designated Roth account in the plan. Therefore, if a contribution is first made to a participant’s designated Roth account in the plan for 2025, the first year for which a qualified distribution can be made is 2030.

Publication 575 (2025) 11

However, if a direct rollover is made to the plan from a designated Roth account under another plan, the 5-tax-year period for the recipient plan begins with the first tax year for which a contribution was made to the participant’s designated Roth account in the other plan (if earlier).

Your 401(k), 403(b), or 457(b) plan may permit you to roll over amounts from those plans to a designated Roth account within the same plan. This is known as an in-plan Roth rollover. If an in-plan Roth rollover is the first contribution made to your designated Roth account, the 5-tax-year period of participation begins on the first day of the first tax year in which you make the in-plan Roth rollover.

For more details, see In-plan Roth rollovers, later.