What Is a 10-Year Tax Option?
Posted on Sep 30, 2014 9:10am PDT
Q. Tim R. of Massachusetts asks: "What is a 10-Year Tax Option?"
A. Spencer Olsen of Pension Evaluators & QDROS Of Troyan, Inc Associates
Group, responds:
"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, rather
than 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.
Spencer Olsen
Senior Pension Analyst
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