Annuity - Simplified Method Worksheet

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This tax worksheet calculates return of basis in an annuity starting after 11/18/1996. If a taxpayer begins to receive annuity payments from a qualified retirement plan after November 18, 1996, use the Simplified Method 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 simplified method is not used if the annuity is for a specific number of payments. Instead, the basis recovery is calculated by dividing the basis by the actual number of payments required in the annuity contract [IRC Sec. 72(d)(1)(B)]. The simplified method does not apply to annuitants who are age 75 or over on the annuity starting date unless there are fewer than five years of guaranteed payments under the annuity [IRC Sec. 72(d)(1)(E)]. If the method does not apply, the participant's return of basis is apparently calculated using the general rule as outlined in IRS Pub. 939.
  2. The joint life annuity table can be used only for annuities starting after 1997. For annuities beginning after November 18, 1996, and before 1998, the single life table must be used, even if there is a joint beneficiary.
  3. If the number of annuity payments made to the participant exceeds the assumed number of payments in the tables, excess payments are fully taxable [IRC Sec. 72(b)(2)]. On the other hand, if the participant (and joint annuitant, if applicable) dies and payments cease before the full number of assumed payments have been made, the unrecovered basis in the annuity can be deducted as a miscellaneous itemized deduction not subject to the 2% AGI floor [IRC Secs. 72(b)(3) and 67(b)(10)].

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