Annuity - Simplified General Rule Worksheet

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This tax worksheet calculates return of basis in an annuity starting before 11/19/1996. If a taxpayer begins receiving annuity payments from a qualified retirement plan after July 1, 1986 and before November 19, 1996, a taxpayer could chose to use either the Annuity - Simplified Method worksheet or the Annuity – Simplified General Rule worksheet to figure the tax-free part of the payments.

Notes

  • A qualified retirement plan is a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract.
  • Taxpayers that receive annuity payments starting after 11/18/1996, from a nonqualified retirement plan, must use the Annuity – Simplified Method worksheet.

Footnotes

  1. The Annuity - Simplified General Rule worksheet is optional. Instead, the taxpayer may use the general rule as outlined in IRS Pub. 939. The election to use the simplified general rule can be made or revoked by filing amended returns for all open years starting with the year the first payment was received. Once the year containing the annuity starting date is closed (i.e., the statute of limitations has expired), no change is permitted
  2. Before TRA '86, taxpayers could exclude annuity payments in excess of their cost basis by outliving their life expectancies. This benefit was replaced for annuities with a start date after December 31, 1986.
  3. The total amount excluded is limited to the investment in the contract amount [IRC Sec. 72(b)(2)]. Thus, the exclusion ceases when the investment in the contract has been recovered. If the annuity ceases before full recovery of cost because of the annuitant's (or beneficiary's) death, a deduction is allowed for the unrecovered cost as of the date of death [IRC Sec. 72(b)(3)]. The deduction is claimed as a miscellaneous itemized deduction not subject to the 2% of AGI floor on the decedent's final return [IRC Sec. 67(b)(10)].

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