 TITLE: Do Retirement Accounts Affect Your Taxes? CONTENT: Traditional Pension Plan\n------------------------\nGenerally, contributions to a traditional pension plan are tax-free. If you have an employer-sponsored pension plan, you may be required to pay a 10% penalty on your federal tax return if you take out money before 59½. Exceptions include withdrawals made when you become totally and permanently disabled.\nOnce you retire, you'll typically pay federal income tax on monthly pension payments or a lump-sum pension payment. However, the sponsor of the pension plan normally withholds taxes when it sends pension checks, meaning at least some of your tax burden should be reduced.\nBy the way, 14 states don't tax pension payments—including Florida, Texas and Illinois—but the rest do. END