Table of Contents
- General Information
- Pension.
- Annuity.
- Qualified employee plan.
- Qualified employee annuity.
- Designated Roth account.
- Tax-sheltered annuity plan.
- Fixed-period annuities.
- Annuities for a single life.
- Joint and survivor annuities.
- Variable annuities.
- Disability pensions.
- Variable Annuities
- Section 457 Deferred Compensation Plans
- Disability Pensions
- Insurance Premiums for Retired Public Safety Officers
- Railroad Retirement Benefits
- Withholding Tax and Estimated Tax
- Cost (Investment in the Contract)
- Taxation of Periodic Payments
- Taxation of Nonperiodic Payments
- Rollovers
- Special Additional Taxes
- Survivors and Beneficiaries
- Hurricane-Related Relief
- Relief for Kansas Disaster Area
- Relief for Midwestern Disaster Areas
- How To Get Tax Help
Example.
Your employer set up a noncontributory profit-sharing plan for its employees. The plan provides that the amount held in the account of each participant will be paid when that participant retires. Your employer also set up a contributory defined benefit pension plan for its employees providing for the payment of a lifetime pension to each participant after retirement.
The amount of any distribution from the profit-sharing plan depends on the contributions (including allocated forfeitures) made for the participant and the earnings from those contributions. Under the pension plan, however, a formula determines the amount of the pension benefits. The amount of contributions is the amount necessary to provide that pension.
Each plan is a separate program and a separate contract. If you get benefits from these plans, you must account for each separately, even though the benefits from both may be included in the same check.
The tax rules in this publication apply both to annuities that provide fixed payments and to annuities that provide payments that vary in amount based on investment results or other factors. For example, they apply to commercial variable annuity contracts, whether bought by an employee retirement plan for its participants or bought directly from the issuer by an individual investor. Under these contracts, the owner can generally allocate the purchase payments among several types of investment portfolios or mutual funds and the contract value is determined by the performance of those investments. The earnings are not taxed until distributed either in a withdrawal or in annuity payments. The taxable part of a distribution is treated as ordinary income.
For information on the tax treatment of a transfer or exchange of a variable annuity contract, see Transfers of Annuity Contracts under Taxation of Nonperiodic Payments, later.
If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you.
This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525.
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Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans.
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Nonelective deferred compensation plans for nonemployees (independent contractors).
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Deferred compensation plans maintained by churches.
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Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. An exception applies if the total amount paid to a volunteer exceeds $3,000 for any year of service.
If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled.
Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Report the payments on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b.
If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. The premiums can be for coverage for you, your spouse, or dependents. The distribution must be made directly from the plan to the insurance provider. You can exclude from income the smaller of the amount of the insurance premiums or $3,000. You can only make this election for amounts that would otherwise be included in your income. The amount excluded from your income cannot be used to claim a medical expense deduction.
An eligible retirement plan is a governmental plan that is:
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a qualified trust,
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a section 403(a) plan,
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a section 403(b) annuity, or
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a section 457(b) plan.
If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. The amount shown in box 2a of Form 1099-R does not reflect this exclusion. Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Enter “PSO” next to the appropriate line on which you report the taxable amount.
If you are retired on disability and reporting your disability pension on line 7 of Form 1040 or Form 1040A, or line 8 of Form 1040NR, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line.
Benefits paid under the Railroad Retirement Act fall into two categories. These categories are treated differently for income tax purposes.
The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and you treat it for tax purposes like social security benefits. If you received, repaid, or had tax withheld from the SSEB portion of tier 1 benefits during 2009, you will receive Form RRB-1099, Payments by the Railroad Retirement Board (or Form RRB-1042S, Statement for Nonresident Alien Recipients of Payments by the Railroad Retirement Board, if you are a nonresident alien) from the U.S. Railroad Retirement Board (RRB).
For more information about the tax treatment of the SSEB portion of tier 1 benefits and Forms RRB-1099 and RRB-1042S, see Publication 915.
The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. (The NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R.) Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. See Taxation of Periodic Payments , later, for information on how to report your benefits and how to recover the employee contributions tax free. Form RRB-1099-R is used for U.S. citizens, resident aliens, and nonresident aliens.
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Federal income tax withholding,
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Medicare premiums,
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Legal process garnishment payments,
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Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, or
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Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity.
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Social Security benefits,
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Age reduction,
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Public Service pensions or public disability benefits,
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Dual railroad retirement entitlement under another RRB claim number,
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Work deductions,
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Legal process partition deductions,
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Actuarial adjustment,
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Annuity waiver, or
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Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits.
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Your retirement plan distributions are subject to federal income tax withholding. However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. (These are distributions, described later under Rollovers, that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA.) If you choose not to have tax withheld or if you do not have enough tax withheld, you may have to make estimated tax payments. See Estimated tax , later.
The withholding rules apply to the taxable part of payments you receive from:
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An employer pension, annuity, profit-sharing, or stock bonus plan,
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Any other deferred compensation plan,
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A traditional individual retirement arrangement (IRA), or
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A commercial annuity.
For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company.
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You do not give the payer your social security number (in the required manner), or
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The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number.
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You do not give the payer your social security number (in the required manner), or
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The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number.
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90% of the tax to be shown on your 2010 return, or
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100% of the tax shown on your 2009 return.
Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). If any part of a distribution is treated as a recovery of your cost under the rules explained in this publication, that part is tax free. Therefore, the first step in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity.
In general, your cost is your net investment in the contract as of the annuity starting date (or the date of the distribution, if earlier). To find this amount, you must first figure the total premiums, contributions, or other amounts you paid. This includes the amounts your employer contributed that were taxable to you when paid. (However, see Foreign employment contributions , later.) It does not include amounts withheld from your pay on a tax-deferred basis (money that was taken out of your gross pay before taxes were deducted). It also does not include amounts you contributed for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits).
From this total cost you must subtract the following amounts.
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Any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income and that you received by the later of the annuity starting date or the date on which you received your first payment.
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Any other tax-free amounts you received under the contract or plan by the later of the dates in (1).
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If you must use the Simplified Method for your annuity payments, the tax-free part of any single-sum payment received in connection with the start of the annuity payments, regardless of when you received it. (See Simplified Method , later, for information on its required use.)
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If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. (See General Rule , later, for information on its use.) Your annuity contract has a refund feature if the annuity payments are for your life (or the lives of you and your survivor) and payments in the nature of a refund of the annuity's cost will be made to your beneficiary or estate if all annuitants die before a stated amount or a stated number of payments are made. For more information, see Publication 939.
The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments.
Example.
On January 1, you completed all your payments required under an annuity contract providing for monthly payments starting on August 1 for the period beginning July 1. The annuity starting date is July 1. This is the date you use in figuring the cost of the contract and selecting the appropriate number from Table 1 for line 3 of the Simplified Method Worksheet.
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Before 1963 by your employer for that work,
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After 1962 by your employer for that work if you performed the services under a plan that existed on March 12, 1962, or
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After 1996 by your employer on your behalf if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person).
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Was made based on compensation which was for services performed outside the United States while you were a nonresident alien, and
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Was not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if paid as cash compensation when the services were performed.
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 one 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 is not 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 Insurance Premiums for Retired Public Safety Officers , earlier).
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Made after a 5-tax-year period of participation, and
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Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable to your being disabled.
The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because any of the following situations applies to you (however, see Insurance Premiums for Retired Public Safety Officers , earlier).
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You did not pay anything or are not considered to have paid anything for your pension or annuity.
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Your employer did not withhold contributions from your salary.
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You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly Taxable Payments, later).
Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. You should make no entry on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a.
If you have a cost to recover from your pension or annuity plan (see Cost (Investment in the Contract) , earlier), you can exclude part of each annuity payment from income as a recovery of your cost. This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. The rest of each payment is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier).
You figure the tax-free part of the payment using one of the following methods.
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Simplified Method. You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). You cannot use this method if your annuity is paid under a nonqualified plan.
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General Rule. You must use this method if your annuity is paid under a nonqualified plan. You generally cannot use this method if your annuity is paid under a qualified plan.
You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost.
If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately.
Example 1.
Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. The total cost of your annuity is $12,000. Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). After that, your annuity payments are generally fully taxable.
Example 2.
The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. You have recovered tax free only $9,600 (8 × $1,200) of your cost. An itemized deduction for your unrecovered cost of $2,400 ($12,000 – $9,600) can be taken on your final return.
Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. For any other annuity, this number is the number of monthly annuity payments under the contract.
Example.
Bill Smith, age 65, began receiving retirement benefits in 2009 under a joint and survivor annuity. Bill's annuity starting date is January 1, 2009. The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death.
Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of Worksheet A in completing line 3 of the worksheet. His completed worksheet is shown below.
Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. The full amount of any annuity payments received after 310 payments are paid must be included in gross income.
If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. This deduction is not subject to the 2%-of-adjusted- gross-income limit.
Worksheet A. Simplified Method Worksheet for Bill Smith
| 1. | Enter the total pension or annuity payments received this year. Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a | 1. | $14,400 |
| 2. | Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion.* See Cost (Investment in the Contract) earlier | 2. | 31,000 |
| Note. If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Otherwise, go to line 3. | |||
| 3. | Enter the appropriate number from Table 1 below. But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below | 3. | 310 |
| 4. | Divide line 2 by the number on line 3 | 4. | 100 |
| 5. | Multiply line 4 by the number of months for which this year's payments were made. If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Otherwise, go to line 6 | 5. | 1,200 |
| 6. | Enter any amount previously recovered tax free in years after 1986. This is the amount shown on line 10 of your worksheet for last year | 6. | -0- |
| 7. | Subtract line 6 from line 2 | 7. | 31,000 |
| 8. | Enter the smaller of line 5 or line 7 | 8. | 1,200 |
| 9. | Taxable amount for year. Subtract line 8 from line 1. Enter the result, but not less than zero. Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers earlier before entering an amount on your tax return | 9. | $13,200 |
| 10. | Was your annuity starting date before 1987? □ Yes. STOP. Do not complete the rest of this worksheet. □ No. Add lines 6 and 8. This is the amount you have recovered tax free through 2009. You will need this number if you need to fill out this worksheet next year |
10. | 1,200 |
| 11. | Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you will not have to complete this worksheet next year. The payments you receive next year will generally be fully taxable | 11. | $29,800 |
| * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. | |||
| Table 1 for Line 3 Above | ||||
| AND your annuity starting date was— | ||||
| IF the age at annuity starting date was... |
BEFORE November 19, 1996, enter on line 3... |
AFTER November 18, 1996, enter on line 3... |
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| 55 or under | 300 | 360 | ||
| 56-60 | 260 | 310 | ||
| 61-65 | 240 | 260 | ||
| 66-70 | 170 | 210 | ||
| 71 or older | 120 | 160 | ||
| Table 2 for Line 3 Above | ||||
| IF the combined ages at annuity starting date were... |
THEN enter on line 3... |
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| 110 or under | 410 | |||
| 111-120 | 360 | |||
| 121-130 | 310 | |||
| 131-140 | 260 | |||
| 141 or older | 210 | |||
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Complete your worksheet through line 4 to figure the monthly tax-free amount.
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Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants.
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Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. The result is your share of the monthly tax-free amount.
Under the General Rule, you determine the tax-free part of each annuity payment based on the ratio of the cost of the contract to the total expected return. Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. To figure it, you must use life expectancy (actuarial) tables prescribed by the IRS.
This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are taxed. Nonperiodic distributions are also known as amounts not received as an annuity. They include all payments other than periodic payments and corrective distributions.
For example, the following items are treated as nonperiodic distributions.
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Cash withdrawals.
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Distributions of current earnings (dividends) on your investment. However, do not include these distributions in your income to the extent the insurer keeps them to pay premiums or other consideration for the contract.
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Certain loans. See Loans Treated as Distributions , later.
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The value of annuity contracts transferred without full and adequate consideration. See Transfers of Annuity Contracts , later.
How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting date or on or after the annuity starting date. If it is made before the annuity starting date, its tax treatment also depends on whether it is made under a qualified or nonqualified plan and, if it is made under a nonqualified plan, whether it fully discharges the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you made before August 14, 1982.
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Because of the plan participant's death,
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After the participant reaches age 59½,
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Because the participant, if an employee, separates from service, or
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After the participant, if a self-employed individual, becomes totally and permanently disabled.
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Your contributions to the plan that are attributable to the securities.
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Your employer's contributions that were taxed as ordinary income in the year the securities were distributed.
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Your NUA in the securities that is attributable to employer contributions and taxed as ordinary income in the year the securities were distributed.
If you receive a nonperiodic payment from your annuity contract on or after the annuity starting date, you generally must include all of the payment in gross income. For example, a cost-of-living increase in your pension after the annuity starting date is an amount not received as an annuity and, as such, is fully taxable.
If you receive a nonperiodic distribution before the annuity starting date from a qualified retirement plan, you generally can allocate only part of it to the cost of the contract. You exclude from your gross income the part that you allocate to the cost. You include the remainder in your gross income.
For this purpose, a qualified retirement plan is:
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A qualified employee plan (or annuity contract purchased by such a plan),
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A qualified employee annuity plan, or
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A tax-sheltered annuity plan (403(b) plan).
Use the following formula to figure the tax-free amount of the distribution.
For this purpose, your account balance includes only amounts to which you have a nonforfeitable right (a right that cannot be taken away).
Example.
Ann Brown received a $50,000 distribution from her retirement plan before her annuity starting date. She had $10,000 invested (cost) in the plan. Her account balance was $100,000. She can exclude $5,000 of the $50,000 distribution, figured as follows:
If you receive a nonperiodic distribution before the annuity starting date from a plan other than a qualified retirement plan, it is allocated first to earnings (the taxable part) and then to the cost of the contract (the tax-free part). This allocation rule applies, for example, to a commercial annuity contract you bought directly from the issuer. You include in your gross income the smaller of:
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The nonperiodic distribution, or
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The amount by which the cash value of the contract (figured without considering any surrender charge) immediately before you receive the distribution exceeds your investment in the contract at that time.
Example.
You bought an annuity from an insurance company. Before the annuity starting date under your annuity contract, you received a $7,000 distribution. At the time of the distribution, the annuity had a cash value of $16,000 and your investment in the contract was $10,000. The distribution is allocated first to earnings, so you must include $6,000 ($16,000 − $10,000) in your gross income. The remaining $1,000 ($7,000 − $6,000) is a tax-free return of part of your investment.
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Distributions in full discharge of a contract that you receive as a refund of what you paid for the contract or for the complete surrender, redemption, or maturity of the contract.
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Distributions from life insurance or endowment contracts (other than modified endowment contracts, as defined in section 7702A of the Internal Revenue Code) that are not received as an annuity under the contracts.
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Distributions under contracts entered into before August 14, 1982, to the extent that they are allocable to your investment before August 14, 1982.
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The part of your investment that was made before August 14, 1982. This part of the distribution is tax free.
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The earnings on the part of your investment that was made before August 14, 1982. This part of the distribution is taxable.
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The earnings on the part of your investment that was made after August 13, 1982. This part of the distribution is taxable.
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The part of your investment that was made after August 13, 1982. This part of the distribution is tax free.
If you borrow money from your retirement plan, you must treat the loan as a nonperiodic distribution from the plan unless it qualifies for the exception to this loan-as-distribution rule explained later. This treatment also applies to any loan under a contract purchased under your retirement plan, and to the value of any part of your interest in the plan or contract that you pledge or assign (or agree to pledge or assign). It applies to loans from both qualified and nonqualified plans, including commercial annuity contracts you purchase directly from the issuer. Further, it applies if you renegotiate, extend, renew, or revise a loan that qualified for the exception below if the altered loan does not qualify. In that situation, you must treat the outstanding balance of the loan as a distribution on the date of the transaction.
You determine how much of the loan is taxable using the allocation rules for nonperiodic distributions discussed under Figuring the Taxable Amount , earlier. The taxable part may be subject to the additional tax on early distributions. It is not an eligible rollover distribution and does not qualify for the 10-year tax option.
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$50,000, or
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Half the present value (but not less than $10,000) of your nonforfeitable accrued benefit under the plan, determined without regard to any accumulated deductible employee contributions.
Example 1.
On May 1, 2009, you borrowed $40,000 from your retirement plan. The loan was to be repaid in level monthly installments over 5 years. The loan was not used to acquire your main home. You make nine monthly payments and start an unpaid leave of absence that lasts for 12 months. You were not in a uniformed service during this period. After the leave period ends and you resume active employment, you resume making repayments on the loan. You must repay this loan by April 30, 2014 (5 years from the date of this loan). You can increase your monthly installments or you can make the original monthly installments and on April 30, 2014, pay the balance.
Example 2.
The facts are the same as in Example 1, except that you are on a leave of absence performing service in the uniformed services for 2 years. The loan payments were suspended for that period. You must resume making loan payments at the end of that period and the loan must be repaid by April 30, 2016 (5 years from the date of the loan plus the period of suspension).
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Members of a controlled group of corporations,
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Businesses under common control, or
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Members of an affiliated service group.
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The loan is secured by amounts from elective deferrals under a qualified cash or deferred arrangement (section 401(k) plan) or a salary reduction agreement to purchase a tax-sheltered annuity, or
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You are a key employee as defined in section 416(i) of the Internal Revenue Code.
If you transfer without full and adequate consideration an annuity contract issued after April 22, 1987, you are treated as receiving a nonperiodic distribution. The distribution equals the excess of:
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The cash surrender value of the contract at the time of transfer, over
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Your investment in the contract at that time.
This rule does not apply to transfers between spouses or transfers between former spouses incident to a divorce.
If you transfer a full or partial interest in a tax-sheltered annuity that is not subject to restrictions on early distributions to another tax-sheltered annuity, the transfer qualifies for nonrecognition of gain or loss.
If you exchange an annuity contract issued by a life insurance company that is subject to a rehabilitation, conservatorship, or similar state proceeding for an annuity contract issued by another life insurance company, the exchange qualifies for nonrecognition of gain or loss. The exchange is tax free even if the new contract is funded by two or more payments from the old annuity contract. This also applies to an exchange of a life insurance contract for a life insurance, endowment, annuity, or a qualified long-term care insurance contract.
If you transfer part of the cash surrender value of an existing annuity contract for a new annuity contract issued by another insurance company, the transfer qualifies for nonrecognition of gain or loss. The funds must be transferred directly between the insurance companies. Your investment in the original contract immediately before the exchange is allocated between the contracts based on the percentage of the cash surrender value allocated to each contract.
Example.
You own an annuity contract issued by ABC Insurance. You assign 60% of the cash surrender value of that contract to DEF Insurance to purchase an annuity contract. The funds are transferred directly between the insurance companies. You do not recognize any gain or loss on the transaction. After the exchange, your investment in the new contract is equal to 60% of your investment in the old contract immediately before the exchange. Your investment in the old contract is equal to 40% of your original investment in that contract.
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You withdraw all the cash to which you are entitled.
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You reinvest the proceeds within 60 days in a single contract issued by another insurance company.
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You assign all rights to any future distributions to the new issuer if the cash distribution is restricted by the state proceeding to an amount that is less than required for full settlement.
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An exchange of these contracts would otherwise qualify as a tax-free transfer.
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The amount of cash distributed under the old contract.
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The amount of cash reinvested in the new contract.
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Your investment in the old contract on the date of the initial distribution.
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A copy of the statement you gave to the new issuer.
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A statement that contains the words “ELECTION UNDER REV. PROC. 92-44,” the new issuer's name, and the policy number or similar identifying information for the new contract.
A lump-sum distribution is the distribution or payment in one tax year of a plan participant's entire balance from all of the employer's qualified plans of one kind (for example, pension, profit-sharing, or stock bonus plans). A distribution from a nonqualified plan (such as a privately purchased commercial annuity or a section 457 deferred compensation plan of a state or local government or tax-exempt organization) cannot qualify as a lump-sum distribution.
The participant's entire balance from a plan does not include certain forfeited amounts. It also does not include any deductible voluntary employee contributions allowed by the plan after 1981 and before 1987.
If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. You may be able to use the 10-year tax option, discussed later, to figure tax on the ordinary income part.
Each individual, estate, or trust who receives part of a lump-sum distribution on behalf of a plan participant who was born before January 2, 1936, can choose whether to elect the optional methods for the part each received. However, if two or more trusts receive the distribution, the plan participant or the personal representative of a deceased participant must make the choice.
Use Form 4972 to figure the separate tax on a lump-sum distribution using the optional methods. The tax figured on Form 4972 is added to the regular tax figured on your other income. This may result in a smaller tax than you would pay by including the taxable amount of the distribution as ordinary income in figuring your regular tax.
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The part of a distribution not rolled over if the distribution is partially rolled over to another qualified plan or an IRA.
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Any distribution if an earlier election to use either the 5- or 10-year tax option had been made after 1986 for the same plan participant.
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U.S. Retirement Plan Bonds distributed with a lump sum.
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Any distribution made during the first five tax years that the participant was in the plan, unless it was made because the participant died.
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The current actuarial value of any annuity contract included in the lump sum. (Form 1099-R, box 8, should show this amount, which you use only to figure tax on the ordinary income part of the distribution.)
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Any distribution to a 5% owner that is subject to penalties under section 72(m)(5)(A) of the Internal Revenue Code.
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A distribution from an IRA.
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A distribution from a tax-sheltered annuity (section 403(b) plan).
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A distribution of the redemption proceeds of bonds rolled over tax free to a qualified pension plan, etc., from a qualified bond purchase plan.
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A distribution from a qualified plan if the participant or his or her surviving spouse previously received an eligible rollover distribution from the same plan (or another plan of the employer that must be combined with that plan for the lump-sum distribution rules) and the previous distribution was rolled over tax free to another qualified plan or an IRA.
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A distribution from a qualified plan that received a rollover after 2001 from an IRA (other than a conduit IRA), a governmental section 457 plan, or a section 403(b) tax-sheltered annuity on behalf of the plan participant.
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A distribution from a qualified plan that received a rollover after 2001 from another qualified plan on behalf of that plan participant's surviving spouse.
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A corrective distribution of excess deferrals, excess contributions, excess aggregate contributions, or excess annual additions.
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A lump-sum credit or payment from the Federal Civil Service Retirement System (or the Federal Employees' Retirement System).
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Report the part of the distribution from participation before 1974 as a capital gain (if you qualify) and the part from participation after 1973 as ordinary income.
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Report the part of the distribution from participation before 1974 as a capital gain (if you qualify) and use the 10-year tax option to figure the tax on the part from participation after 1973 (if you qualify).
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Use the 10-year tax option to figure the tax on the total taxable amount (if you qualify).
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Roll over all or part of the distribution. See Rollovers , later. No tax is currently due on the part rolled over. Report any part not rolled over as ordinary income.
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Report the entire taxable part of the distribution as ordinary income on your tax return.
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The plan participant's nondeductible contributions to the plan,
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The plan participant's taxable costs of any life insurance contract distributed,
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Any employer contributions that were taxable to the plan participant, and
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Repayments of any loans that were taxable to the plan participant.
Capital gain treatment applies only to the taxable part of a lump-sum distribution resulting from participation in the plan before 1974. The amount treated as capital gain is taxed at a 20% rate. You can elect this treatment only once for any plan participant, and only if the plan participant was born before January 2, 1936.
Complete Part II of Form 4972 to choose the 20% capital gain election.
| Capital Gain: | |||
| Total Taxable Amount | × | Months of active participation before 1974 | |
| Total months of active participation | |||
| Ordinary Income: | |||
| Total Taxable Amount | × | Months of active participation after 1973 | |
| Total months of active participation | |||
Illustrated Form 1099-R for Robert Smith
Page 1 of illustrated Form 4972 for Robert Smith
The 10-year tax option is a special formula used to figure a separate tax on the ordinary income part of a lump-sum distribution. You pay the tax only once, for the year in which you receive the distribution, not over the next 10 years. You can elect this treatment only once for any plan participant, and only if the plan participant was born before January 2, 1936.
The ordinary income part of the distribution is the amount shown in box 2a of the Form 1099-R given to you by the payer, minus the amount, if any, shown in box 3. You can also treat the capital gain part of the distribution (box 3 of Form 1099-R) as ordinary income for the 10-year tax option if you do not choose capital gain treatment for that part.
Complete Part III of Form 4972 to choose the 10-year tax option. You must use the special Tax Rate Schedule shown in the instructions for Part III to figure the tax.
The following examples show how to figure the separate tax on Form 4972.
Example 1.
Robert C. Smith, who was born in 1935, retired from Crabtree Corporation in 2009. He withdrew the entire amount to his credit from the company's qualified pension plan. In December 2009, he received a total distribution of $175,000 (the $25,000 tax-free part of the distribution consisting of employee contributions plus the $150,000 taxable part of the distribution consisting of employer contributions and earnings on all contributions).
The payer gave Robert a Form 1099-R, which shows the capital gain part of the taxable distribution (the part attributable to participation before 1974) to be $10,000. Robert elects 20% capital gain treatment for this part. Filled-in copies of Robert's Form 1099-R and Form 4972 follow. He enters $10,000 on Form 4972, Part II, line 6 and $2,000 ($10,000 × 20%) on Part II, line 7.
The ordinary income part of the taxable distribution is $140,000 ($150,000 – $10,000). Robert elects to figure the tax on this part using the 10-year tax option. He enters $140,000 on Form 4972, Part III, line 8. Then he completes the rest of Form 4972 and includes the tax of $24,270 in the total on line 44 of his Form 1040.
Example 2.
Mary Brown, who was born in 1935, sold her business in 2009. She withdrew her entire interest in the qualified profit-sharing plan she had set up as the sole proprietor.
The cash part of the distribution, $160,000, is all ordinary income and is shown on her Form 1099-R below. She chooses to figure the tax on this amount using the 10-year tax option. Mary also received an annuity contract as part of the distribution from the plan. Box 8, Form 1099-R, shows that the current actuarial value of the annuity was $10,000. She enters these figures on Form 4972 (shown later).
After completing Form 4972, she includes the tax of $28,070 in the total on Form 1040, line 44.
Illustrated Form 1099-R for Mary Brown
Page 1 of illustrated Form 4972 for Mary Brown
If you withdraw cash or other assets from a qualified retirement plan in an eligible rollover distribution, you can defer tax on the distribution by rolling it over to another qualified retirement plan or a traditional IRA. You do not include the amount rolled over in your income until you receive it in a distribution from the recipient plan or IRA without rolling over that distribution. (For information about rollovers from traditional IRAs, see chapter 1 of Publication 590.)
If you roll over the distribution to a traditional IRA, you cannot deduct the amount rolled over as an IRA contribution. When you later withdraw it from the IRA, you cannot use the optional methods discussed earlier under Lump-Sum Distributions to figure the tax.
Self-employed individuals are generally treated as employees for the rules on the tax treatment of distributions, including the rules for rollovers.
See Designated Roth accounts , later, for information on rollovers related to those accounts. Also, see Rollovers to Roth IRAs , later, for information on rollovers from a qualified retirement plan to a Roth IRA.
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A qualified employee plan.
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A qualified employee annuity.
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A tax-sheltered annuity plan (403(b) plan).
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An eligible state or local government section 457 deferred compensation plan.
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Any of a series of substantially equal distributions paid at least once a year over:
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Your lifetime or life expectancy,
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The joint lives or life expectancies of you and your beneficiary, or
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A period of 10 years or more,
-
-
A required minimum distribution (discussed later under Tax on Excess Accumulation ),
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Hardship distributions,
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Corrective distributions of excess contributions or excess deferrals, and any income allocable to these distributions, or of excess annual additions and any allocable gains (see Corrective distributions of excess plan contributions , at the beginning of Taxation of Nonperiodic Payments, earlier),
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A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon default), unless the participant's accrued benefits are reduced (offset) to repay the loan (see Loans Treated as Distributions , earlier),
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Dividends paid on employer securities, and
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The cost of life insurance coverage.
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The distribution and all previous eligible rollover distributions you received during the tax year from the same plan (or, at the payer's option, from all your employer's plans) total less than $200, or
-
The distribution consists solely of employer securities, plus cash of $200 or less in lieu of fractional shares.
Example.
You receive an eligible rollover distribution of $10,000 from your employer's qualified employee plan. The payer withholds $2,000, so you actually receive $8,000. If you want to roll over the entire $10,000 to postpone including that amount in your income, you will have to get $2,000 from some other source to add to the $8,000 you actually received.
If you roll over only $8,000, you must include the $2,000 not rolled over in your income for the distribution year. Also, you may be subject to the 10% additional tax on the $2,000 if it was distributed to you before you reached age 59½.
-
The bankruptcy or insolvency of the financial institution, or
-
A restriction on withdrawals by the state in which the institution is located because of the bankruptcy or insolvency (or threat of it) of one or more financial institutions in the state.
Example 1.
On September 4, 2009, Paul received an eligible rollover distribution from his employer's noncontributory qualified employee plan of $50,000 in nonemployer stock. On September 24, 2009, he sold the stock for $60,000. On October 3, 2009, he contributed $60,000 cash to a traditional IRA. Paul does not include either the $50,000 eligible rollover distribution or the $10,000 gain from the sale of the stock in his income. The entire $60,000 rolled over will be ordinary income when he withdraws it from his IRA.
Example 2.
The facts are the same as in Example 1, except that Paul sold the stock for $40,000 and contributed $40,000 to the IRA. Paul does not include the $50,000 eligible rollover distribution in his income and does not deduct the $10,000 loss from the sale of the stock. The $40,000 rolled over will be ordinary income when he withdraws it from his IRA.
Example 3.
The facts are the same as in Example 1, except that Paul rolled over only $45,000 of the $60,000 proceeds from the sale of the stock. The $15,000 proceeds he did not roll over includes part of the gain from the stock sale. Paul reports $2,500 ($10,000 ÷ $60,000 × $15,000) as capital gain and $12,500 ($50,000 ÷ $60,000 × $15,000) as ordinary income.
Example 4.
The facts are the same as in Example 2, except that Paul rolled over only $25,000 of the $40,000 proceeds from the sale of the stock. The $15,000 proceeds he did not roll over includes part of the loss from the stock sale. Paul reports $3,750 ($10,000 ÷ $40,000 × $15,000) capital loss and $18,750 ($50,000 ÷ $40,000 × $15,000) ordinary income.
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Your right to have the distribution paid tax free directly to another qualified retirement plan or to a traditional or Roth IRA.
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The requirement to withhold tax from the distribution if it is not directly rolled over.
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The nontaxability of any part of the distribution that you roll over within 60 days after you receive the distribution.
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Other qualified retirement plan rules that apply, including those for lump-sum distributions, alternate payees, and cash or deferred arrangements.
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How the distribution rules of the plan to which you roll over the distribution may differ from the rules that apply to the plan making the distribution in their restrictions and tax consequences.
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You must have the opportunity to consider whether or not you want to make a direct rollover for at least 30 days after the explanation is provided.
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The information you receive must clearly state that you have the right to have 30 days to make a decision.
Example.
You receive an eligible rollover distribution that is not a qualified distribution from your designated Roth account. The distribution consists of $11,000 (investment) and $3,000 (income earned). Within 60 days of receipt, you roll over $7,000 into a Roth IRA. The $7,000 consists of $3,000 of income and $4,000 of investment. Since you rolled over the part of the distribution that could be included in gross income (income earned), none of the distribution is included in gross income.
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Your modified adjusted gross income for Roth IRA purposes (explained in chapter 2 of Publication 590) is not more than $100,000.
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You are not a married individual filing a separate return.
Table 1. Comparison of Payment to You Versus Direct Rollover
| Affected item | Result of a payment to you | Result of a direct rollover |
| Withholding | The payer must withhold 20% of the taxable part. | There is no withholding. |
| Additional tax | If you are under age 59½, a 10% additional tax may apply to the taxable part (including an amount equal to the tax withheld) that is not rolled over. | There is no 10% additional tax. See Tax on Early Distributions , later. |
| When to report as income |
Any taxable part (including the taxable part of any amount withheld) not rolled over is income to you in the year paid. | Any taxable part is not income to you until later distributed to you from the new plan or IRA. However, see Rollovers to Roth IRAs , earlier, for an exception. |
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A plaintiff in the civil action In re Exxon Valdez, No. 89-095-CV (HRH) (Consolidated) (D.Alaska), or
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The beneficiary of the estate of a plaintiff who acquired the right to receive qualified settlement income from that plaintiff and who is the spouse or immediate relative of that plaintiff.
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Otherwise includible in income, and
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Received in connection with the Exxon Valdez civil action described (whether pre- or post-judgment and whether related to a settlement or a judgment).
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Included in your taxable income for the year the qualified settlement income was received, and
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Treated as part of your cost basis (investment in the contract) that is not taxable when distributed.
To discourage the use of pension funds for purposes other than normal retirement, the law imposes additional taxes on early distributions of those funds and on failures to withdraw the funds timely. Ordinarily, you will not be subject to these taxes if you roll over all early distributions you receive, as explained earlier, and begin drawing out the funds at a normal retirement age, in prorated amounts over your life expectancy. These special additional taxes are the taxes on:
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Early distributions, and
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Excess accumulation (not receiving minimum distributions).
These taxes are discussed in the following sections.
If you must pay either of these taxes, report them on Form 5329. However, you do not have to file Form 5329 if you owe only the tax on early distributions and your Form 1099-R correctly shows a “1” in box 7. Instead, enter 10% of the taxable part of the distribution on Form 1040, line 58 and enter “No” under the heading “Other Taxes” to the left of line 58. If you file Form 1040NR, enter 10% of the taxable part of the distribution on line 54 and enter “No” under the heading “Other Taxes” to the left of line 54.
Even if you do not owe any of these taxes, you may have to complete Form 5329 and attach it to your Form 1040 or Form 1040NR. This applies if you meet an exception to the tax on early distributions but box 7 of your Form 1099-R does not indicate an exception.
Most distributions (both periodic and nonperiodic) from qualified retirement plans and nonqualified annuity contracts made to you before you reach age 59½ are subject to an additional tax of 10%. This tax applies to the part of the distribution that you must include in gross income. It does not apply to any part of a distribution that is tax free, such as amounts that represent a return of your cost or that were rolled over to another retirement plan. It also does not apply to corrective distributions of excess deferrals, excess contributions, or excess aggregate contributions (discussed earlier under Taxation of Nonperiodic Payments).
For this purpose, a qualified retirement plan is:
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A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)),
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A qualified employee annuity plan,
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A tax-sheltered annuity plan (403(b) plan), or
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An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA).
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Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service). See Substantially equal periodic payments , later,
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Made because you are totally and permanently disabled, or
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Made on or after the death of the plan participant or contract holder.
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From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees),
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From a qualified retirement plan (other than an IRA) to an alternate payee under a qualified domestic relations order,
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From a qualified retirement plan to the extent you have deductible medical expenses (medical expenses that exceed 7.5% of your adjusted gross income), whether or not you itemize your deductions for the year,
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From an employer plan under a written election that provides a specific schedule for distribution of your entire interest if, as of March 1, 1986, you had separated from service and had begun receiving payments under the election,
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From an employee stock ownership plan for dividends on employer securities held by the plan,
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From a qualified retirement plan due to an IRS levy of the plan, or
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From elective deferral accounts under 401(k) or 403(b) plans, or similar arrangements, that are qualified reservist distributions.
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From a deferred annuity contract to the extent allocable to investment in the contract before August 14, 1982,
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From a deferred annuity contract under a qualified personal injury settlement,
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From a deferred annuity contract purchased by your employer upon termination of a qualified employee plan or qualified employee annuity plan and held by your employer until your separation from service, or
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From an immediate annuity contract (a single premium contract providing substantially equal annuity payments that start within one year from the date of purchase and are paid at least annually).
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Required minimum distribution method. Under this method, the resulting annual payment is redetermined for each year.
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Fixed amortization method. Under this method, the resulting annual payment is determined once for the first distribution year and remains the same amount for each succeeding year.
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Fixed annuitization method. Under this method, the resulting annual payment is determined once for the first distribution year and remains the same amount for each succeeding year.
To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date (defined later). The payments each year cannot be less than the minimum required distribution.
If the actual distributions to you in any year are less than the minimum required distribution (RMD) for that year, you are subject to an additional tax. The tax equals 50% of the part of the required minimum distribution that was not distributed.
For this purpose, a qualified retirement plan includes:
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A qualified employee plan,
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A qualified employee annuity plan,
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An eligible section 457 deferred compensation plan, or
-
A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986).
-
The calendar year in which you reach age 70½, or
-
The calendar year in which you retire from employment with the employer maintaining the plan.
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Receive your entire interest in the plan (for a tax-sheltered annuity, your entire benefit accruing after 1986), or
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Begin receiving periodic distributions in annual amounts calculated to distribute your entire interest (for a tax-sheltered annuity, your entire benefit accruing after 1986) over your life or life expectancy or over the joint lives or joint life expectancies of you and a designated beneficiary (or over a shorter period).
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Rule 1. The distribution must be completed by December 31 of the fifth year following the year of the employee's death. For 2009, the distribution can be waived, effectively taking distributions over a 6-year period.
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Rule 2. The distribution must be made in annual amounts over the life or life expectancy of the designated beneficiary. For 2009, the distribution can be waived.
Generally, a survivor or beneficiary reports pension or annuity income in the same way the plan participant would have reported it. However, some special rules apply, and they are covered elsewhere in this publication as well as in this section.
Special rules regarding withdrawals and repayments from certain retirement plans provided relief to taxpayers who suffered an economic loss as a result of Hurricane Katrina, Rita, or Wilma and applied to distributions received before 2007 as qualified hurricane distributions. Although, qualified hurricane distributions had to be included in income before 2009, certain 2006 distributions could be repaid through 2009.
If you received a qualified hurricane distribution, the taxable amount is figured in the same manner as other distributions (see the sections on Cost , Taxation of Periodic Payments , and Taxation of Nonperiodic Payments , earlier). However, the distribution was included in income ratably over 3 years beginning with the year you received the distribution, unless you elected to report the entire amount in the year of distribution. You can repay the distribution and not be taxed on the distribution.
Form 8915, Qualified Hurricane Retirement Plan Distributions and Repayments, is used to report repayments of qualified hurricane distributions.
For information on other tax provisions related to these hurricanes, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma.
Most 2006 qualified hurricane distributions are eligible for repayment to an eligible retirement plan (defined later). Payments received as a beneficiary (other than a surviving spouse), periodic payments (other than from IRAs), and required minimum distributions are not eligible for repayment. Periodic payments, for this purpose, are payments that are for (a) a period of 10 years or more, (b) your life or life expectancy, or (c) the joint lives or joint life expectancies of you and your beneficiary. For distributions eligible for repayment, you have 3 years from the day after the date you received the distribution to repay all or part to any plan, annuity, or IRA to which a rollover can be made. Within the time allowed, you may make as many repayments as you choose. The total amount repaid cannot be more than the amount of your qualified hurricane distributions. Amounts repaid are treated as a qualified rollover and are not included in income. The way you report repayments depends on whether you reported the distributions under the 3-year ratable method, or you elected to report the distributions in the year of distribution.
Example.
Maria received a $15,000 qualified hurricane distribution on November 10, 2006, from a section 457(b) plan. She elected out of the 3-year ratable method for reporting distributions on Form 8915 and included the entire $15,000 in gross income for 2006. On October 31, 2009, she repays $15,000 to the plan. She must file an amended return for 2006 to reduce her gross income by the $15,000 repayment amount and a revised Form 8915 to report the repayment.
Example.
John received a $90,000 qualified hurricane distribution from his pension plan on November 15, 2006. He did not elect to include the entire distribution in his 2006 income. He included $30,000 of the distribution in income on his 2006, 2007, and 2008 returns. On November 8, 2009, John repays $45,000 to an eligible retirement plan. He makes no other repayments during the allowable 3-year period. John may carry back the repayment and reduce the amount previously included in income by amending his 2006, 2007, or 2008 return.
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A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan).
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A qualified annuity plan.
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A tax-sheltered annuity contract.
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A governmental section 457 deferred compensation plan.
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A traditional, SEP, SIMPLE, or Roth IRA.
If you make a repayment in 2009, the repayment may reduce the amount of your qualified hurricane distributions that were previously included in income. You will need to file an amended tax return to refigure your taxable income.
Include the repayment on your 2009 Form 8915. You can file an amended return for 2006, 2007, or 2008 if either of the following applies.
-
You elected to include all of your qualified hurricane distributions in income for 2006 (not over 3 years) on your original return.
-
You received a qualified hurricane distribution in 2006 and included it in income over 3 years. You can only make a repayment if it is made within 3 years after the distribution was received. You can amend your 2006, 2007, or 2008 return, if applicable, to carry the repayment back.
File Form 1040X to amend a return you have already filed. Generally, Form 1040X must be filed within 3 years after the date the original return was filed, or within 2 years after the date the tax was paid, whichever is later.
Special rules provided for tax-favored withdrawals, repayments, and loans from certain retirement plans for individuals who suffered economic losses as a result of the May 4, 2007, Kansas storms and tornadoes and applied to distributions received before 2009 as qualified recovery assistance distributions (defined later). While qualified recovery assistance distributions cannot be made after 2008, the special rules explain how much of a qualified distribution has to be included in income after 2008, and when an amended return must be filed to reduce the amount of a qualified distribution previously included in income as a result of a repayment after 2008.
Except as provided below, a qualified recovery assistance distribution is any distribution you received and designated as such from an eligible retirement plan (see Eligible retirement plan on this page) if all of the following apply.
-
The distribution was made after May 3, 2007, and before January 1, 2009.
-
Your main home was located in the Kansas disaster area on May 4, 2007. For a definition of main home, see Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes.
-
You sustained an economic loss because of the storms and tornadoes. Examples of an economic loss include, but are not limited to:
-
Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause;
-
Loss related to displacement from your home; or
-
Loss of livelihood due to temporary or permanent layoffs.
-
If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified recovery assistance distribution, regardless of whether the distribution was made on account of the storms and tornadoes. Qualified recovery assistance distributions are permitted without regard to your need or the actual amount of your economic loss.
The total of your qualified recovery assistance distributions from all plans is limited to $100,000. If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose.
A reduction or offset after May 3, 2007, of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified recovery assistance distribution.
Qualified recovery assistance distributions are included in income in equal amounts over three years. However, if you elect, you can include the entire distribution in your income in the year it was received.
Qualified recovery assistance distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). However, any distributions you receive in excess of the $100,000 qualified recovery assistance distribution limit may be subject to the additional tax on early distributions.
If you choose, you generally can repay any portion of a qualified recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan (defined earlier under Hurricane-Related Relief). Also, you can repay a qualified recovery assistance distribution made on account of a hardship from a retirement plan. However, see Exceptions below for qualified recovery assistance distributions you cannot repay.
You have three years from the day after the date you received the distribution to make a repayment. Amounts that are repaid are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. See Form 8915 for more information on how to report repayments.
-
Qualified recovery assistance distributions received as a beneficiary (other than a surviving spouse).
-
Required minimum distributions.
-
Periodic payments (other than from an IRA) that are for:
-
A period of 10 years or more,
-
Your life or life expectancy, or
-
The joint lives or joint life expectancies of you and your beneficiary.
-
If you make a repayment in 2009, the repayment may reduce the amount of your qualified recovery assistance distributions that were previously included in income. You may need to file an amended return to refigure your taxable income if:
-
You elected to include all of your qualified recovery assistance distributions in income in the year of the distributions (not over 3 years) on your original return, and
-
The amount of the repayment exceeds the portion of the qualified recovery assistance distributions that are includible in income for 2009, and you choose to carry the excess back to your 2008 (or if applicable, 2007) tax return.
File Form 1040X to amend a return you have already filed. Generally, Form 1040X must be filed within 3 years after the date the original return was filed, or within 2 years after the date the tax was paid, whichever is later.
See Tables 1 and 2 in Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas, for a list of the Midwestern disaster areas and the applicable disaster dates.
Special rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of the Midwestern severe storms, tornadoes, or flooding.
If you receive a qualified disaster recovery assistance distribution, it is taxable but is not subject to the 10% additional tax on early distributions (see the sections on Cost , Taxation of Periodic Payments , and Taxation of Nonperiodic Payments , earlier). However, the distribution is included in income ratably over 3 years unless you elect to report the entire amount in the year of distribution. You can repay the distribution and not be taxed on the distribution. See Qualified disaster recovery assistance distribution, later.
Form 8930, Qualified Disaster Recovery Assistance Retirement Plan Distributions and Repayments, is used to report qualified disaster recovery assistance distributions and repayments.
For information on other tax provisions related to these storms, tornadoes, or flooding, see Publication 4492-B.
A qualified disaster recovery assistance distribution is any distribution you received from an eligible retirement plan (see Eligible retirement plan earlier) if all of the following apply.
-
The distribution was made on or after the applicable disaster date and before January 1, 2010.
-
Your main home was located in a Midwestern disaster area on the applicable disaster date. For a definition of main home, see the Form 8930 instructions.
-
You sustained an economic loss because of the severe storms, tornadoes, or flooding and your main home was in a Midwestern disaster area on the applicable disaster date. Examples of an economic loss include, but are not limited to:
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Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause;
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Loss related to displacement from your home; or
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Loss of livelihood due to temporary or permanent layoffs.
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If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified disaster recovery assistance distribution, regardless of whether the distribution was made on account of the severe storms, tornadoes, or flooding. Qualified disaster recovery assistance distributions are permitted without regard to your need or the actual amount of your economic loss.
A reduction or offset (on or after the applicable disaster date) of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified disaster recovery assistance distribution.
Qualified disaster recovery assistance distributions are included in income in equal amounts over three years. However, if you elect, you can include the entire distribution in your income in the year it was received.
Qualified disaster recovery assistance distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). However, any distributions you receive in excess of the $100,000 qualified disaster recovery assistance distribution limit may be subject to the additional tax on early distributions.
For more information, see Form 8930.
If you choose, you generally can repay any portion of a qualified disaster recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Also, you can repay a qualified disaster recovery assistance distribution made on account of a hardship from a retirement plan. However, see Exceptions later for qualified disaster recovery assistance distributions you cannot repay.
You have three years from the day after the date you received the distribution to make a repayment. Amounts that are repaid are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. See Form 8930 for more information on how to report repayments.
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Report $0 in income on his 2010 return, and carry the $15,000 excess repayment ($45,000 - $30,000) forward to 2011 and reduce the amount reported in that year to $15,000, or
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Report $0 in income on his 2010 return, report $30,000 on his 2011 return, and file an amended return for 2009 to reduce the amount previously included in income to $15,000 ($30,000 - $15,000).
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Qualified disaster recovery assistance distributions received as a beneficiary (other than a surviving spouse).
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Required minimum distributions.
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Periodic payments (other than from an IRA) that are for:
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A period of 10 years or more,
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Your life or life expectancy, or
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The joint lives or joint life expectancies of you and your beneficiary.
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If after filing your original return, you make a repayment, the repayment may reduce the amount of your qualified disaster recovery assistance distributions that were previously included in income. Depending on when a repayment is made, you may need to file an amended tax return to refigure your taxable income.
If you make a repayment by the due date of your original return (including extensions), include the repayment on your amended return.
If you make a repayment after the due date of your original return (including extensions), include it on your amended return only if either of the following apply.
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You elected to include all of your qualified disaster recovery assistance distributions in income in the year of the distributions (not over 3 years) on your original return.
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The amount of the repayment exceeds the portion of the qualified disaster recovery assistance distributions that are includible in income for 2010 and you choose to carry the excess back to your 2009 tax return.
The following benefits are available to qualified individuals.
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Increases to the limits for distributions treated as loans from employer plans.
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A one-year suspension for payments due on plan loans.
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Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause;
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Loss related to displacement from your home; or
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Loss of livelihood due to temporary or permanent layoffs.
You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.
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TAS is your voice at the IRS.
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Our service is free, confidential, and tailored to meet your needs.
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You may be eligible for TAS help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should.
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TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. This includes businesses as well as individuals.
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TAS employees know the IRS and how to navigate it. We will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved.
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TAS has at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. You can call your local advocate, whose number is in your phone book, in Pub. 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www.irs.gov/advocate. You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059.
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You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www.taxtoolkit.irs.gov.
www.aarp.org/money/taxaide. For more information on these programs, go to
www.irs.gov and enter keyword “VITA” in the upper right-hand corner.
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E-file your return. Find out about commercial tax preparation and e-file services available free to eligible taxpayers.
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Check the status of your 2009 refund. Go to
www.irs.gov and click on Where's My Refund. Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. -
Download forms, instructions, and publications.
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Order IRS products online.
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Research your tax questions online.
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Search publications online by topic or keyword.
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Use the online Internal Revenue Code, Regulations, or other official guidance.
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View Internal Revenue Bulletins (IRBs) published in the last few years.
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Figure your withholding allowances using the withholding calculator online at www.irs.gov/individuals.
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Determine if Form 6251 must be filed by using our Alternative Minimum Tax (AMT) Assistant.
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Sign up to receive local and national tax news by email.
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Get information on starting and operating a small business.
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Ordering forms, instructions, and publications. Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, and publications, and prior-year forms and instructions. You should receive your order within 10 days.
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Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
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Solving problems. You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Call your local Taxpayer Assistance Center for an appointment. To find the number, go to www.irs.gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service.
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TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications.
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TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.
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Refund information. To check the status of your 2009 refund, call 1-800-829-1954 during business hours or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Refunds are sent out weekly on Fridays. If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back.
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Other refund information. To check the status of a prior year refund or amended return refund, call 1-800-829-1954.
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Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.
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Services. You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. No appointment is necessary—just walk in. If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. All other issues will be handled without an appointment. To find the number of your local office, go to
www.irs.gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service.
Internal Revenue Service
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613
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Current-year forms, instructions, and publications.
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Prior-year forms, instructions, and publications.
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Tax Map: an electronic research tool and finding aid.
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Tax law frequently asked questions.
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Tax Topics from the IRS telephone response system.
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Internal Revenue Code—Title 26 of the U.S. Code.
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Fill-in, print, and save features for most tax forms.
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Internal Revenue Bulletins.
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Toll-free and email technical support.
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Two releases during the year.
– The first release will ship the beginning of January 2010.
– The final release will ship the beginning of March 2010.
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