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Fix-It Guides - Common Problems, Real Solutions

Tips on how to find, fix, and avoid common mistakes in retirement plans.

Each guide provides:

  • an overview of the rules for each plan type,
  • an overview of the Employee Plans Compliance Resolution System,
  • the most frequent errors we find in each plan type and
  • tips on how to find, fix and avoid these mistakes.

The format of each guide enables users to navigate, select and print only the mistakes that are of interest to them.

Additional Resource:

Page Last Reviewed or Updated: 17-Oct-2013

The Taxact Free

Taxact free Publication 575 - Main Content Table of Contents General InformationPension. Taxact free Annuity. Taxact free Qualified employee plan. Taxact free Qualified employee annuity. Taxact free Designated Roth account. Taxact free Tax-sheltered annuity plan. Taxact free Fixed-period annuities. Taxact free Annuities for a single life. Taxact free Joint and survivor annuities. Taxact free Variable annuities. Taxact free Disability pensions. Taxact free 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)Foreign employment contributions while a nonresident alien. Taxact free Taxation of Periodic PaymentsPeriod of participation. Taxact free Fully Taxable Payments Partly Taxable Payments Taxation of Nonperiodic PaymentsFiguring the Taxable Amount Loans Treated as Distributions Transfers of Annuity Contracts Lump-Sum Distributions RolloversExceptions. Taxact free No tax withheld. Taxact free Partial rollovers. Taxact free Frozen deposits. Taxact free Reasonable period of time. Taxact free 20% Mandatory withholding. Taxact free How to report. Taxact free How to report. Taxact free Special rule for Roth IRAs and designated Roth accounts. Taxact free Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and BeneficiariesGuaranteed payments. Taxact free How To Get Tax HelpLow Income Taxpayer Clinics General Information Definitions. Taxact free   Some of the terms used in this publication are defined in the following paragraphs. Taxact free Pension. Taxact free   A pension is generally a series of definitely determinable payments made to you after you retire from work. Taxact free Pension payments are made regularly and are based on such factors as years of service and prior compensation. Taxact free Annuity. Taxact free   An annuity is a series of payments under a contract made at regular intervals over a period of more than one full year. Taxact free They can be either fixed (under which you receive a definite amount) or variable (not fixed). Taxact free You can buy the contract alone or with the help of your employer. Taxact free Qualified employee plan. Taxact free   A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries and that meets Internal Revenue Code requirements. Taxact free It qualifies for special tax benefits, such as tax deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions (if participants qualify). Taxact free To determine whether your plan is a qualified plan, check with your employer or the plan administrator. Taxact free Qualified employee annuity. Taxact free   A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Taxact free Designated Roth account. Taxact free   A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k), 403(b), or 457(b) plan designated as Roth contributions. Taxact free Elective deferrals that are designated as Roth contributions are included in your income. Taxact free However, qualified distributions (explained later) are not included in your income. Taxact free You should check with your plan administrator to determine if your plan will accept designated Roth contributions. Taxact free Tax-sheltered annuity plan. Taxact free   A tax-sheltered annuity plan (often referred to as a 403(b) plan or a tax-deferred annuity plan) is a retirement plan for employees of public schools and certain tax-exempt organizations. Taxact free Generally, a tax-sheltered annuity plan provides retirement benefits by purchasing annuity contracts for its participants. Taxact free Types of pensions and annuities. Taxact free   Pensions and annuities include the following types. Taxact free Fixed-period annuities. Taxact free   You receive definite amounts at regular intervals for a specified length of time. Taxact free Annuities for a single life. Taxact free   You receive definite amounts at regular intervals for life. Taxact free The payments end at death. Taxact free Joint and survivor annuities. Taxact free   The first annuitant receives a definite amount at regular intervals for life. Taxact free After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Taxact free The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Taxact free Variable annuities. Taxact free   You receive payments that may vary in amount for a specified length of time or for life. Taxact free The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund. Taxact free Disability pensions. Taxact free   You receive disability payments because you retired on disability and have not reached minimum retirement age. Taxact free More than one program. Taxact free   You may receive employee plan benefits from more than one program under a single trust or plan of your employer. Taxact free If you participate in more than one program, you may have to treat each as a separate pension or annuity contract, depending upon the facts in each case. Taxact free Also, you may be considered to have received more than one pension or annuity. Taxact free Your former employer or the plan administrator should be able to tell you if you have more than one contract. Taxact free Example. Taxact free Your employer set up a noncontributory profit-sharing plan for its employees. Taxact free The plan provides that the amount held in the account of each participant will be paid when that participant retires. Taxact free 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. Taxact free 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. Taxact free Under the pension plan, however, a formula determines the amount of the pension benefits. Taxact free The amount of contributions is the amount necessary to provide that pension. Taxact free Each plan is a separate program and a separate contract. Taxact free 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. Taxact free Distributions from a designated Roth account are treated separately from other distributions from the plan. Taxact free Qualified domestic relations order (QDRO). Taxact free   A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant in a retirement plan. Taxact free The QDRO must contain certain specific information, such as the name and last known mailing address of the participant and each alternate payee, and the amount or percentage of the participant's benefits to be paid to each alternate payee. Taxact free A QDRO may not award an amount or form of benefit that is not available under the plan. Taxact free   A spouse or former spouse who receives part of the benefits from a retirement plan under a QDRO reports the payments received as if he or she were a plan participant. Taxact free The spouse or former spouse is allocated a share of the participant's cost (investment in the contract) equal to the cost times a fraction. Taxact free The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. Taxact free The denominator is the present value of all benefits payable to the participant. Taxact free   A distribution that is paid to a child or other dependent under a QDRO is taxed to the plan participant. Taxact free Variable Annuities 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. Taxact free 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. Taxact free 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. Taxact free The earnings are not taxed until distributed either in a withdrawal or in annuity payments. Taxact free The taxable part of a distribution is treated as ordinary income. Taxact free Net investment income tax. Taxact free   Beginning in 2013, annuities under a nonqualified plan are included in calculating your net investment income for the net investment income tax (NIIT). Taxact free For information see the Instructions for Form 8960, Net Investment Income Tax — Individuals, Estates and Trusts. Taxact free 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. Taxact free Withdrawals. Taxact free   If you withdraw funds before your annuity starting date and your annuity is under a qualified retirement plan, a ratable part of the amount withdrawn is tax free. Taxact free The tax-free part is based on the ratio of your cost (investment in the contract) to your account balance under the plan. Taxact free   If your annuity is under a nonqualified plan (including a contract you bought directly from the issuer), the amount withdrawn is allocated first to earnings (the taxable part) and then to your cost (the tax-free part). Taxact free However, if you bought your annuity contract before August 14, 1982, a different allocation applies to the investment before that date and the earnings on that investment. Taxact free To the extent the amount withdrawn does not exceed that investment and earnings, it is allocated first to your cost (the tax-free part) and then to earnings (the taxable part). Taxact free   If you withdraw funds (other than as an annuity) on or after your annuity starting date, the entire amount withdrawn is generally taxable. Taxact free   The amount you receive in a full surrender of your annuity contract at any time is tax free to the extent of any cost that you have not previously recovered tax free. Taxact free The rest is taxable. Taxact free   For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments , later. Taxact free If you withdraw funds from your annuity before you reach age 59½, also see Tax on Early Distributions under Special Additional Taxes, later. Taxact free Annuity payments. Taxact free   If you receive annuity payments under a variable annuity plan or contract, you recover your cost tax free under either the Simplified Method or the General Rule, as explained under Taxation of Periodic Payments , later. Taxact free For a variable annuity paid under a qualified plan, you generally must use the Simplified Method. Taxact free For a variable annuity paid under a nonqualified plan (including a contract you bought directly from the issuer), you must use a special computation under the General Rule. Taxact free For more information, see Variable annuities in Publication 939 under Computation Under the General Rule. Taxact free Death benefits. Taxact free    If you receive a single-sum distribution from a variable annuity contract because of the death of the owner or annuitant, the distribution is generally taxable only to the extent it is more than the unrecovered cost of the contract. Taxact free If you choose to receive an annuity, the payments are subject to tax as described above. Taxact free If the contract provides a joint and survivor annuity and the primary annuitant had received annuity payments before death, you figure the tax-free part of annuity payments you receive as the survivor in the same way the primary annuitant did. Taxact free See Survivors and Beneficiaries , later. Taxact free Section 457 Deferred Compensation Plans 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. Taxact free 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. Taxact free You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. Taxact free You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. Taxact free Your 457(b) plan may have a designated Roth account option. Taxact free If so, you may be able to roll over amounts to the designated Roth account or make contributions. Taxact free Elective deferrals to a designated Roth account are included in your income. Taxact free Qualified distributions (explained later) are not included in your income. Taxact free See the Designated Roth accounts discussion under Taxation of Periodic Payments, later. Taxact free This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. Taxact free For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525. Taxact free Is your plan eligible?   To find out if your plan is an eligible plan, check with your employer. Taxact free Plans that are not eligible section 457 plans include the following: Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans. Taxact free Nonelective deferred compensation plans for nonemployees (independent contractors). Taxact free Deferred compensation plans maintained by churches. Taxact free Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. Taxact free An exception applies if the total amount paid to a volunteer exceeds $3,000 for any year of service. Taxact free Disability Pensions 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. Taxact free 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. Taxact free Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Taxact free You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Taxact free For information on this credit, see Publication 524. Taxact free Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Taxact free Report the payments on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Taxact free Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. Taxact free For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Taxact free Insurance Premiums for Retired Public Safety Officers 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. Taxact free The premiums can be for coverage for you, your spouse, or dependents. Taxact free The distribution must be made directly from the plan to the insurance provider. Taxact free You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Taxact free You can only make this election for amounts that would otherwise be included in your income. Taxact free The amount excluded from your income cannot be used to claim a medical expense deduction. Taxact free An eligible retirement plan is a governmental plan that is: a qualified trust, a section 403(a) plan, a section 403(b) annuity, or a section 457(b) plan. Taxact free If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Taxact free The amount shown in box 2a of Form 1099-R does not reflect this exclusion. Taxact free Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Taxact free Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Taxact free Enter “PSO” next to the appropriate line on which you report the taxable amount. Taxact free 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. Taxact free Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Taxact free These categories are treated differently for income tax purposes. Taxact free 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. Taxact free 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. Taxact free If you received, repaid, or had tax withheld from the SSEB portion of tier 1 benefits during 2013, 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. Taxact free S. Taxact free Railroad Retirement Board (RRB). Taxact free 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. Taxact free The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). Taxact free It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Taxact free Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. Taxact free 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. Taxact free (The NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R. Taxact free ) Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Taxact free See Taxation of Periodic Payments , later, for information on how to report your benefits and how to recover the employee contributions tax free. Taxact free Form RRB-1099-R is used for U. Taxact free S. Taxact free citizens, resident aliens, and nonresident aliens. Taxact free Nonresident aliens. Taxact free   A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Taxact free Nonresident aliens are subject to mandatory U. Taxact free S. Taxact free tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. Taxact free A tax treaty exemption may reduce or eliminate tax withholding from railroad retirement benefits. Taxact free See Tax withholding next for more information. Taxact free   If you are a nonresident alien and your tax withholding rate changed or your country of legal residence changed during the year, you may receive more than one Form RRB-1042S or Form RRB-1099-R. Taxact free To determine your total benefits paid or repaid and total tax withheld for the year, you should add the amounts shown on all forms you received for that year. Taxact free For information on filing requirements for aliens, see Publication 519, U. Taxact free S. Taxact free Tax Guide for Aliens. Taxact free For information on tax treaties between the United States and other countries that may reduce or eliminate U. Taxact free S. Taxact free tax on your benefits, see Publication 901, U. Taxact free S. Taxact free Tax Treaties. Taxact free Tax withholding. Taxact free   To request or change your income tax withholding from SSEB payments, U. Taxact free S. Taxact free citizens should contact the IRS for Form W-4V, Voluntary Withholding Request, and file it with the RRB. Taxact free To elect, revoke, or change your income tax withholding from NSSEB, tier 2, VDB, and supplemental annuity payments received, use Form RRB W-4P, Withholding Certificate for Railroad Retirement Payments. Taxact free If you are a nonresident alien or a U. Taxact free S. Taxact free citizen living abroad, you should provide Form RRB-1001, Nonresident Questionnaire, to the RRB to furnish citizenship and residency information and to claim any treaty exemption from U. Taxact free S. Taxact free tax withholding. Taxact free Nonresident U. Taxact free S. Taxact free citizens cannot elect to be exempt from withholding on payments delivered outside of the U. Taxact free S. Taxact free Help from the RRB. Taxact free   To request an RRB form or to get help with questions about an RRB benefit, you should contact your nearest RRB field office if you reside in the United States (call 1-877-772-5772 for the nearest field office) or U. Taxact free S. Taxact free consulate/Embassy if you reside outside the United States. Taxact free You can visit the RRB on the Internet at www. Taxact free rrb. Taxact free gov. Taxact free Form RRB-1099-R. Taxact free   The following discussion explains the items shown on Form RRB-1099-R. Taxact free The amounts shown on this form are before any deduction for: Federal income tax withholding, Medicare premiums, Legal process garnishment payments, Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, or Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity. Taxact free   The amounts shown on this form are after any offset for: Social Security benefits, Age reduction, Public Service pensions or public disability benefits, Dual railroad retirement entitlement under another RRB claim number, Work deductions, Legal process partition deductions, Actuarial adjustment, Annuity waiver, or Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits. Taxact free   The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or the special 10-year tax option for lump-sum payments, or tax-free rollovers. Taxact free To determine if any of these rules apply to your benefits, see the discussions about them later. Taxact free   Generally, amounts shown on your Form RRB-1099-R are considered a normal distribution. Taxact free Use distribution code “7” if you are asked for a distribution code. Taxact free Distribution codes are not shown on Form RRB-1099-R. Taxact free   There are three copies of this form. Taxact free Copy B is to be included with your income tax return if federal income tax is withheld. Taxact free Copy C is for your own records. Taxact free Copy 2 is filed with your state, city, or local income tax return, when required. Taxact free See the illustrated Copy B (Form RRB-1099-R) above. Taxact free       Each beneficiary will receive his or her own Form RRB-1099-R. Taxact free If you receive benefits on more than one railroad retirement record, you may get more than one Form RRB-1099-R. Taxact free So that you get your form timely, make sure the RRB always has your current mailing address. Taxact free Please click here for the text description of the image. Taxact free Form RRB-1099-R Box 1—Claim Number and Payee Code. Taxact free   Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. Taxact free This is the number under which the RRB paid your benefits. Taxact free Your payee code follows your claim number and is the last number in this box. Taxact free It is used by the RRB to identify you under your claim number. Taxact free In all your correspondence with the RRB, be sure to use the claim number and payee code shown in this box. Taxact free Box 2—Recipient's Identification Number. Taxact free   This is the recipient's U. Taxact free S. Taxact free taxpayer identification number. Taxact free It is the social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN), if known, for the person or estate listed as the recipient. Taxact free If you are a resident or nonresident alien who must furnish a taxpayer identification number to the IRS and are not eligible to obtain an SSN, use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN. Taxact free The Instructions for Form W-7 explain how and when to apply. Taxact free Box 3—Employee Contributions. Taxact free   This is the amount of taxes withheld from the railroad employee's earnings that exceeds the amount of taxes that would have been withheld had the earnings been covered under the social security system. Taxact free This amount is the employee's cost that you use to figure the tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). Taxact free (For information on how to figure the tax-free part, see Partly Taxable Payments under Taxation of Periodic Payments, later. Taxact free ) The amount shown is the total employee contribution amount, not reduced by any amounts that the RRB calculated as previously recovered. Taxact free It is the latest amount reported for 2013 and may have increased or decreased from a previous Form RRB-1099-R. Taxact free If this amount has changed, the change is retroactive. Taxact free You may need to refigure the tax-free part of your NSSEB/tier 2 benefit for 2013 and prior tax years. Taxact free If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown in box 4 is fully taxable. Taxact free    If you had a previous annuity entitlement that ended and you are figuring the tax-free part of your NSSEB/tier 2 benefit for your current annuity entitlement, you should contact the RRB for confirmation of your correct employee contribution amount. Taxact free Box 4—Contributory Amount Paid. Taxact free   This is the gross amount of the NSSEB and tier 2 benefit you received in 2013, less any 2013 benefits you repaid in 2013. Taxact free (Any benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Taxact free ) This amount is the total contributory pension paid in 2013. Taxact free It may be partly taxable and partly tax free or fully taxable. Taxact free If you determine you are eligible to compute a tax-free part as explained later in Partly Taxable Payments under Taxation of Periodic Payments, use the latest reported employee contribution amount shown in box 3 as the cost. Taxact free Box 5—Vested Dual Benefit. Taxact free   This is the gross amount of vested dual benefit (VDB) payments paid in 2013, less any 2013 VDB payments you repaid in 2013. Taxact free It is fully taxable. Taxact free VDB payments you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Taxact free Note. Taxact free The amounts shown in boxes 4 and 5 may represent payments for 2013 and/or other years after 1983. Taxact free Box 6—Supplemental Annuity. Taxact free   This is the gross amount of supplemental annuity benefits paid in 2013, less any 2013 supplemental annuity benefits you repaid in 2013. Taxact free It is fully taxable. Taxact free Supplemental annuity benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Taxact free Box 7—Total Gross Paid. Taxact free   This is the sum of boxes 4, 5, and 6. Taxact free The amount represents the total pension paid in 2013. Taxact free Include this amount on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Taxact free Box 8—Repayments. Taxact free   This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2013 for years before 2013 or for unknown years. Taxact free The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. Taxact free It only includes repayments of benefits that were taxable to you. Taxact free This means it only includes repayments in 2013 of NSSEB benefits paid after 1985, tier 2 and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. Taxact free If you included the benefits in your income in the year you received them, you may be able to deduct the repaid amount. Taxact free For more information about repayments, see Repayment of benefits received in an earlier year , later. Taxact free    You may have repaid an overpayment of benefits by returning a payment, by making a payment, or by having an amount withheld from your railroad retirement annuity payment. Taxact free Box 9—Federal Income Tax Withheld. Taxact free   This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit. Taxact free Include this on your income tax return as tax withheld. Taxact free If you are a nonresident alien and your tax withholding rate and/or country of legal residence changed during 2013, you will receive more than one Form RRB-1099-R for 2013. Taxact free Determine the total amount of U. Taxact free S. Taxact free federal income tax withheld from your 2013 RRB NSSEB, tier 2, VDB, and supplemental annuity payments by adding the amounts in box 9 of all original 2013 Forms RRB-1099-R, or the latest corrected or duplicate Forms RRB-1099-R you receive. Taxact free Box 10—Rate of Tax. Taxact free   If you are taxed as a U. Taxact free S. Taxact free citizen or resident alien, this box does not apply to you. Taxact free If you are a nonresident alien, an entry in this box indicates the rate at which tax was withheld on the NSSEB, tier 2, VDB, and supplemental annuity payments that were paid to you in 2013. Taxact free If you are a nonresident alien whose tax was withheld at more than one rate during 2013, you will receive a separate Form RRB-1099-R for each rate change during 2013. Taxact free Box 11—Country. Taxact free   If you are taxed as a U. Taxact free S. Taxact free citizen or resident alien, this box does not apply to you. Taxact free If you are a nonresident alien, an entry in this box indicates the country of which you were a resident for tax purposes at the time you received railroad retirement payments in 2013. Taxact free If you are a nonresident alien who was a resident of more than one country during 2013, you will receive a separate Form RRB-1099-R for each country of residence during 2013. Taxact free Box 12—Medicare Premium Total. Taxact free   This is for information purposes only. Taxact free The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in 2013. Taxact free Medicare premium refunds are not included in the Medicare total. Taxact free The Medicare total is normally shown on Form RRB-1099 (if you are a citizen or resident alien of the United States) or Form RRB-1042S (if you are a nonresident alien). Taxact free However, if Form RRB-1099 or Form RRB-1042S is not required for 2013, then this total will be shown on Form RRB-1099-R. Taxact free If your Medicare premiums were deducted from your social security benefits, paid by a third party, refunded to you, and/or you paid the premiums by direct billing, your Medicare total will not be shown in this box. Taxact free Repayment of benefits received in an earlier year. Taxact free   If you had to repay any railroad retirement benefits that you had included in your income in an earlier year because at that time you thought you had an unrestricted right to it, you can deduct the amount you repaid in the year in which you repaid it. Taxact free   If you repaid $3,000 or less in 2013, deduct it on Schedule A (Form 1040), line 23. Taxact free The 2%-of-adjusted-gross-income limit applies to this deduction. Taxact free You cannot take this deduction if you file Form 1040A. Taxact free    If you repaid more than $3,000 in 2013, you can either take a deduction for the amount repaid on Schedule A (Form 1040), line 28 or you can take a credit against your tax. Taxact free For more information, see Repayments in Publication 525. Taxact free Withholding Tax and Estimated Tax Your retirement plan distributions are subject to federal income tax withholding. Taxact free However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. Taxact free (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. Taxact free ) 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. Taxact free See Estimated tax , later. Taxact free The withholding rules apply to the taxable part of payments you receive from: An employer pension, annuity, profit-sharing, or stock bonus plan, Any other deferred compensation plan, A traditional individual retirement arrangement (IRA), or A commercial annuity. Taxact free For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company. Taxact free There will be no withholding on any part of a distribution where it is reasonable to believe that it will not be includible in gross income. Taxact free Choosing no withholding. Taxact free   You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions. Taxact free You can make this choice on Form W-4P for periodic and nonperiodic payments. Taxact free This choice generally remains in effect until you revoke it. Taxact free   The payer will ignore your choice not to have tax withheld if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number. Taxact free   To choose not to have tax withheld, a U. Taxact free S. Taxact free citizen or resident alien must give the payer a home address in the United States or its possessions. Taxact free Without that address, the payer must withhold tax. Taxact free For example, the payer has to withhold tax if the recipient has provided a U. Taxact free S. Taxact free address for a nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U. Taxact free S. Taxact free home address. Taxact free   If you do not give the payer a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to the payer that you are not a U. Taxact free S. Taxact free citizen, a U. Taxact free S. Taxact free resident alien, or someone who left the country to avoid tax. Taxact free But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Taxact free This 30% rate will not apply if you are exempt or subject to a reduced rate by treaty. Taxact free For details, get Publication 519. Taxact free Periodic payments. Taxact free   Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for withholding purposes. Taxact free 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). Taxact free You should give the payer a completed withholding certificate (Form W-4P or a similar form provided by the payer). Taxact free If you do not, tax will be withheld as if you were married and claiming three withholding allowances. Taxact free   Tax will be withheld as if you were single and were claiming no withholding allowances if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number. Taxact free   You must file a new withholding certificate to change the amount of withholding. Taxact free Nonperiodic distributions. Taxact free    Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution is 10% of the distribution. Taxact free You can also ask the payer to withhold an additional amount using Form W-4P. Taxact free The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule. Taxact free Eligible rollover distribution. Taxact free    If you receive an eligible rollover distribution, 20% of it generally will be withheld for income tax. Taxact free You cannot choose not to have tax withheld from an eligible rollover distribution. Taxact free However, tax will not be withheld if you have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct rollover. Taxact free For more information about eligible rollover distributions, see Rollovers , later. Taxact free Estimated tax. Taxact free   Your estimated tax is the total of your expected income tax, self-employment tax, and certain other taxes for the year, minus your expected credits and withheld tax. Taxact free Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 return, or 100% of the tax shown on your 2013 return. Taxact free If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above. Taxact free For more information, get Publication 505, Tax Withholding and Estimated Tax. Taxact free In figuring your withholding or estimated tax, remember that a part of your monthly social security or equivalent tier 1 railroad retirement benefits may be taxable. Taxact free See Publication 915. Taxact free You can choose to have income tax withheld from those benefits. Taxact free Use Form W-4V to make this choice. Taxact free Cost (Investment in the Contract) Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). Taxact free 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. Taxact free Therefore, the first step in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity. Taxact free 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). Taxact free To find this amount, you must first figure the total premiums, contributions, or other amounts you paid. Taxact free This includes the amounts your employer contributed that were taxable to you when paid. Taxact free (However, see Foreign employment contributions , later. Taxact free ) 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). Taxact free It also does not include amounts you contributed for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits). Taxact free From this total cost you must subtract the following amounts. Taxact free 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. Taxact free Any other tax-free amounts you received under the contract or plan by the later of the dates in (1). Taxact free 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. Taxact free (See Simplified Method , later, for information on its required use. Taxact free ) If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. Taxact free (See General Rule , later, for information on its use. Taxact free ) 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. Taxact free For more information, see Publication 939. Taxact free The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments . Taxact free Form 1099-R. Taxact free If you began receiving periodic payments of a life annuity in 2013, the payer should show your total contributions to the plan in box 9b of your 2013 Form 1099-R. Taxact free Annuity starting date defined. Taxact free   Your annuity starting date is the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed. Taxact free Example. Taxact free 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. Taxact free The annuity starting date is July 1. Taxact free 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. Taxact free Designated Roth accounts. Taxact free   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. Taxact free Your cost will also include any in-plan Roth rollovers you included in income. Taxact free Foreign employment contributions. Taxact free   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Taxact free The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (not including the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) but only if the contributions would be excludible from your gross income had they been paid directly to you. Taxact free Foreign employment contributions while a nonresident alien. Taxact free   In determining your cost, special rules apply if you are a U. Taxact free S. Taxact free citizen or resident alien who received distributions in 2013 from a plan to which contributions were made while you were a nonresident alien. Taxact free Your contributions and your employer's contributions are not included in your cost if the contribution: Was made based on compensation which was for services performed outside the United States while you were a nonresident alien, and 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. Taxact free Taxation of Periodic Payments This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Taxact free 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). Taxact free These payments are also known as amounts received as an annuity. Taxact free If you receive an amount from your plan that is not a periodic payment, see Taxation of Nonperiodic Payments , later. Taxact free In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments. Taxact free 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). Taxact free Designated Roth accounts. Taxact free   If you receive a qualified distribution from a designated Roth account, the distribution is not included in your gross income. Taxact free This applies to both your cost in the account and income earned on that account. Taxact free A qualified distribution is generally a distribution that is: Made after a 5-tax-year period of participation, and 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. Taxact free   If the distribution is not a qualified distribution, the rules discussed in this section apply. Taxact free The designated Roth account is treated as a separate contract. Taxact free Period of participation. Taxact free   The 5-tax-year period of participation is the 5-tax-year period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. Taxact free Therefore, for designated Roth contributions made for 2013, the first year for which a qualified distribution can be made is 2018. Taxact free   However, if a direct rollover is made to the plan from a designated Roth account under another plan, the 5-tax-year period for the recipient plan begins with the first tax year for which the participant first had designated Roth contributions made to the other plan. Taxact free   Your 401(k), 403(b), or 457(b) plan may permit you to roll over amounts from those plans to a designated Roth account within the same plan. Taxact free This is known as an in-plan Roth rollover. Taxact free For more details, see In-plan Roth rollovers , later. Taxact free Fully Taxable Payments 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). Taxact free You did not pay anything or are not considered to have paid anything for your pension or annuity. Taxact free Amounts withheld from your pay on a tax-deferred basis are not considered part of the cost of the pension or annuity payment. Taxact free Your employer did not withhold contributions from your salary. Taxact free You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly Taxable Payments, later). Taxact free Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. Taxact free You should make no entry on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Taxact free Deductible voluntary employee contributions. Taxact free   Distributions you receive that are based on your accumulated deductible voluntary employee contributions are generally fully taxable in the year distributed to you. Taxact free Accumulated deductible voluntary employee contributions include net earnings on the contributions. Taxact free If distributed as part of a lump sum, they do not qualify for the 10-year tax option or capital gain treatment, explained later. Taxact free Partly Taxable Payments 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. Taxact free 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. Taxact free The rest of each payment is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Taxact free You figure the tax-free part of the payment using one of the following methods. Taxact free Simplified Method. Taxact free 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). Taxact free You cannot use this method if your annuity is paid under a nonqualified plan. Taxact free General Rule. Taxact free You must use this method if your annuity is paid under a nonqualified plan. Taxact free You generally cannot use this method if your annuity is paid under a qualified plan. Taxact free 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. Taxact free If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. Taxact free Qualified plan annuity starting before November 19, 1996. Taxact free   If your annuity is paid under a qualified plan and your annuity starting date (defined earlier under Cost (Investment in the Contract) ) is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the Simplified Method or the General Rule. Taxact free If your annuity starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the Three-Year Rule. Taxact free If you used the Three-Year Rule (which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable. Taxact free Exclusion limit. Taxact free   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Taxact free Once your annuity starting date is determined, it does not change. Taxact free If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. Taxact free That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. Taxact free Exclusion limited to cost. Taxact free   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a recovery of the cost cannot exceed your total cost. Taxact free Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Taxact free This deduction is not subject to the 2%-of-adjusted-gross-income limit. Taxact free Example 1. Taxact free Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. Taxact free The total cost of your annuity is $12,000. Taxact free Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). Taxact free After that, your annuity payments are generally fully taxable. Taxact free Example 2. Taxact free The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. Taxact free You have recovered tax free only $9,600 (8 × $1,200) of your cost. Taxact free An itemized deduction for your unrecovered cost of $2,400 ($12,000 – $9,600) can be taken on your final return. Taxact free Exclusion not limited to cost. Taxact free   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Taxact free If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Taxact free The total exclusion may be more than your cost. Taxact free Simplified Method 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. Taxact free 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. Taxact free For any other annuity, this number is the number of monthly annuity payments under the contract. Taxact free Who must use the Simplified Method. Taxact free   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you meet both of the following conditions. Taxact free You receive your pension or annuity payments from any of the following plans. Taxact free A qualified employee plan. Taxact free A qualified employee annuity. Taxact free A tax-sheltered annuity plan (403(b) plan). Taxact free On your annuity starting date, at least one of the following conditions applies to you. Taxact free You are under age 75. Taxact free You are entitled to less than 5 years of guaranteed payments. Taxact free Guaranteed payments. Taxact free   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Taxact free If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Taxact free Annuity starting before November 19, 1996. Taxact free   If your annuity starting date is after July 1, 1986, and before November 19, 1996, and you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Taxact free You could have chosen to use the Simplified Method if your annuity is payable for your life (or the lives of you and your survivor annuitant) and you met both of the conditions listed earlier under Who must use the Simplified Method . Taxact free Who cannot use the Simplified Method. Taxact free   You cannot use the Simplified Method if you receive your pension or annuity from a nonqualified plan or otherwise do not meet the conditions described in the preceding discussion. Taxact free See General Rule , later. Taxact free How to use the Simplified Method. Taxact free    Complete Worksheet A in the back of this publication to figure your taxable annuity for 2013. Taxact free Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Taxact free   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Taxact free How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Taxact free For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Taxact free    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Taxact free Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Taxact free Single-life annuity. Taxact free   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Taxact free Enter on line 3 the number shown for your age on your annuity starting date. Taxact free This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Taxact free Multiple-lives annuity. Taxact free   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Taxact free Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Taxact free For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Taxact free For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Taxact free Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Taxact free   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Taxact free Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Taxact free This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Taxact free Fixed-period annuity. Taxact free   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Taxact free Line 6. Taxact free   The amount on line 6 should include all amounts that could have been recovered in prior years. Taxact free If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Taxact free Example. Taxact free Bill Smith, age 65, began receiving retirement benefits in 2013 under a joint and survivor annuity. Taxact free Bill's annuity starting date is January 1, 2013. Taxact free The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Taxact free Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Taxact free 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. Taxact free 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. Taxact free 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. Taxact free His completed worksheet is shown later. Taxact free Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Taxact free Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Taxact free The full amount of any annuity payments received after 310 payments are paid must be included in gross income. Taxact free 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. Taxact free This deduction is not subject to the 2%-of-adjusted-gross-income limit. Taxact free Worksheet A. Taxact free Simplified Method Worksheet for Bill Smith 1. Taxact free Enter the total pension or annuity payments received this year. Taxact free Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Taxact free $14,400 2. Taxact free Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion. Taxact free * See Cost (Investment in the Contract) , earlier 2. Taxact free 31,000   Note. Taxact free 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). Taxact free Otherwise, go to line 3. Taxact free     3. Taxact free Enter the appropriate number from Table 1 below. Taxact free 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. Taxact free 310 4. Taxact free Divide line 2 by the number on line 3 4. Taxact free 100 5. Taxact free Multiply line 4 by the number of months for which this year's payments were made. Taxact free If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Taxact free Otherwise, go to line 6 5. Taxact free 1,200 6. Taxact free Enter any amount previously recovered tax free in years after 1986. Taxact free This is the amount shown on line 10 of your worksheet for last year 6. Taxact free -0- 7. Taxact free Subtract line 6 from line 2 7. Taxact free 31,000 8. Taxact free Enter the smaller of line 5 or line 7 8. Taxact free 1,200 9. Taxact free Taxable amount for year. Taxact free Subtract line 8 from line 1. Taxact free Enter the result, but not less than zero. Taxact free Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Taxact free Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Taxact free 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. Taxact free $13,200 10. Taxact free Was your annuity starting date before 1987? □ Yes. Taxact free STOP. Taxact free Do not complete the rest of this worksheet. Taxact free  ☑ No. Taxact free Add lines 6 and 8. Taxact free This is the amount you have recovered tax free through 2013. Taxact free You will need this number if you need to fill out this worksheet next year 10. Taxact free 1,200 11. Taxact free Balance of cost to be recovered. Taxact free Subtract line 10 from line 2. Taxact free If zero, you will not have to complete this worksheet next year. Taxact free The payments you receive next year will generally be fully taxable 11. Taxact free $29,800         * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Taxact free           Table 1 for Line 3 Above       AND your annuity starting date was—     IF the age at annuity starting date was. Taxact free . Taxact free . Taxact free BEFORE November 19, 1996, enter on line 3. Taxact free . Taxact free . Taxact free AFTER November 18, 1996, enter on line 3. Taxact free . Taxact free . Taxact free     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. Taxact free . Taxact free . Taxact free THEN enter on line 3. Taxact free . Taxact free . Taxact free     110 or under   410     111-120   360     121-130   310     131-140   260     141 or older   210   Multiple annuitants. Taxact free   If you and one or more other annuitants receive payments at the same time, you exclude from each annuity payment a pro rata share of the monthly tax-free amount. Taxact free Figure your share by taking the following steps. Taxact free Complete your worksheet through line 4 to figure the monthly tax-free amount. Taxact free Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants. Taxact free Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. Taxact free The result is your share of the monthly tax-free amount. Taxact free   Replace the amount on line 4 of the worksheet with the result in (3) above. Taxact free Enter that amount on line 4 of your worksheet each year. Taxact free General Rule 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. Taxact free Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Taxact free To figure it, you must use life expectancy (actuarial) tables prescribed by the IRS. Taxact free Who must use the General Rule. Taxact free   You must use the General Rule if you receive pension or annuity payments from: A nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan), or A qualified plan if you are age 75 or older on your annuity starting date and your annuity payments are guaranteed for at least 5 years. Taxact free Annuity starting before November 19, 1996. Taxact free   If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. Taxact free You also had to use it for any fixed-period annuity. Taxact free If you did not have to use the General Rule, you could have chosen to use it. Taxact free If your annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule. Taxact free   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Taxact free Who cannot use the General Rule. Taxact free   You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances described in the preceding discussions apply to you. Taxact free See Simplified Method , earlier. Taxact free More information. Taxact free   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. Taxact free Taxation of Nonperiodic Payments This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are taxed. Taxact free Nonperiodic distributions are also known as amounts not received as an annuity. Taxact free They include all payments other than periodic payments and corrective distributions. Taxact free For example, the following items are treated as nonperiodic distributions. Taxact free Cash withdrawals. Taxact free Distributions of current earnings (dividends) on your investment. Taxact free 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. Taxact free Certain loans. Taxact free See Loans Treated as Distributions , later. Taxact free The value of annuity contracts transferred without full and adequate consideration. Taxact free See Transfers of Annuity Contracts , later. Taxact free Corrective distributions of excess plan contributions. Taxact free   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. Taxact free To correct an excess, your plan may distribute it to you (along with any income earned on the excess). Taxact free Although the plan reports the corrective distributions on Form 1099-R, the distribution is not treated as a nonperiodic distribution from the plan. Taxact free It is not subject to the allocation rules explained in the following discussion, it cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Taxact free    If your retirement plan made a corrective distribution of excess amounts (excess deferrals, excess contributions, or excess annual additions), your Form 1099-R should have the code “8,” “B,” “P,” or “E” in box 7. Taxact free   For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. Taxact free Figuring the Taxable Amount 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. Taxact free 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. Taxact free If it is made under a nonqualified plan, its tax treatment depends on 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. Taxact free You may be able to roll over the taxable amount of a nonperiodic distribution from a qualified retirement plan into another qualified retirement plan or a traditional IRA tax free. Taxact free See Rollovers, later. Taxact free If you do not make a tax-free rollover and the distribution qualifies as a lump-sum distribution, you may be able to elect an optional method of figuring the tax on the taxable amount. Taxact free See Lump-Sum Distributions, later. Taxact free Annuity starting date. Taxact free   The annuity starting date is either the first day of the first period for which you receive an annuity payment under the contract or the date on which the obligation under the contract becomes fixed, whichever is later. Taxact free Distributions of employer securities. Taxact free    If you receive a distribution of employer securities from a qualified retirement plan, you may be able to defer the tax on the net unrealized appreciation (NUA) in the securities. Taxact free The NUA is the net increase in the securities' value while they were in the trust. Taxact free This tax deferral applies to distributions of the employer corporation's stocks, bonds, registered debentures, and debentures with interest coupons attached. Taxact free   If the distribution is a lump-sum distribution, tax is deferred on all of the NUA unless you choose to include it in your income for the year of the distribution. Taxact free    A lump-sum distribution for this purpose is the distribution or payment of a plan participant's entire balance (within a single tax year) from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock bonus plans), but only if paid: Because of the plan participant's death, After the participant reaches age 59½, Because the participant, if an employee, separates from service, or After the participant, if a self-employed individual, becomes totally and permanently disabled. Taxact free    If you choose to include NUA in your income for the year of the distribution and the participant was born before January 2, 1936, you may be able to figure the tax on the NUA using the optional methods described und