General Rule for Pensions and Annuities: Tax Bible Series 2016
Book Details
Author(s)Alexander Schaper
Publisherirspubs.com
ISBN / ASINB01A1FH5GU
ISBN-13978B01A1FH5G1
Sales Rank1,121,171
MarketplaceUnited States 🇺🇸
Description
Introduction
This . gives you the information you need to determine the tax treatment of your pension and annuity income under the General Rule. Generally, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of your net cost, and the taxable balance.
What is the General Rule. The General Rule is one of the two methods used to figure the tax-free part of each annuity payment based on the ratio of your investment in the contract to the total expected return. The other method is the Simplified Method, which is discussed in . 575, Pension and Annuity Income.
Who must use the General Rule. Use this . if you receive pension or annuity payments from:
1. A nonqualified plan (for example, a private annuity, a purchased commercial annuity, or a nonqualified employee plan),
2. A qualified plan if:
a. Your annuity starting date is before November 19, 1996 (and after July 1, 1986), and you do not qualify to use, or did not choose to use, the Simplified Method, or
b. Your annuity starting date is after November 18, 1996, and as of that date you are age 75 or over and the annuity payments are guaranteed for at least 5 years.
If your annuity starting date was between July 1, 1986 and November 19, 1996, you were able to elect to use the Simplified Method or the General Rule. This choice is irrevocable and applied to all later annuity payments.
The following are qualified plans.
• A qualified employee plan.
• A qualified employee annuity.
• A tax-sheltered annuity (TSA) plan or contract.
Simplified Method. If you receive pension or annuity payments from a qualified plan and you are not required to use the General Rule, you must use the Simplified Method to determine the tax-free part of each annuity payment. This method is described in . 575, Pension and Annuity Income.
Also, if, at the time the annuity payments began, you were at least age 75 and were entitled to annuity payments from a qualified plan with fewer than 5 years of guaranteed payments, you must use the Simplified Method.
This . gives you the information you need to determine the tax treatment of your pension and annuity income under the General Rule. Generally, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of your net cost, and the taxable balance.
What is the General Rule. The General Rule is one of the two methods used to figure the tax-free part of each annuity payment based on the ratio of your investment in the contract to the total expected return. The other method is the Simplified Method, which is discussed in . 575, Pension and Annuity Income.
Who must use the General Rule. Use this . if you receive pension or annuity payments from:
1. A nonqualified plan (for example, a private annuity, a purchased commercial annuity, or a nonqualified employee plan),
2. A qualified plan if:
a. Your annuity starting date is before November 19, 1996 (and after July 1, 1986), and you do not qualify to use, or did not choose to use, the Simplified Method, or
b. Your annuity starting date is after November 18, 1996, and as of that date you are age 75 or over and the annuity payments are guaranteed for at least 5 years.
If your annuity starting date was between July 1, 1986 and November 19, 1996, you were able to elect to use the Simplified Method or the General Rule. This choice is irrevocable and applied to all later annuity payments.
The following are qualified plans.
• A qualified employee plan.
• A qualified employee annuity.
• A tax-sheltered annuity (TSA) plan or contract.
Simplified Method. If you receive pension or annuity payments from a qualified plan and you are not required to use the General Rule, you must use the Simplified Method to determine the tax-free part of each annuity payment. This method is described in . 575, Pension and Annuity Income.
Also, if, at the time the annuity payments began, you were at least age 75 and were entitled to annuity payments from a qualified plan with fewer than 5 years of guaranteed payments, you must use the Simplified Method.
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