Publication 575 - Pension And Annuity Income - 2004 Page 11
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36Who must use the Simplified Method. You must use the
You do not need to complete line 3 of the work-
TIP
Simplified Method if your annuity starting date is after
sheet or make the computation on line 4 if you
received annuity payments last year and used
November 18, 1996, and you meet both of the following
last year’s worksheet to figure your taxable annuity. In-
conditions.
stead, enter the amount from line 4 of last year’s worksheet
1. You receive your pension or annuity payments from
on line 4 of this year’s worksheet.
any of the following plans.
Single-life annuity. If your annuity is payable for your
a. A qualified employee plan.
life alone, use Table 1 at the bottom of the worksheet to
determine the total number of expected monthly pay-
b. A qualified employee annuity.
ments. Enter on line 3 the number shown for your age on
c. A tax-sheltered annuity plan (403(b) plan).
your annuity starting date. This number will differ depend-
ing on whether your annuity starting date is before Novem-
2. On your annuity starting date, at least one of the
ber 19, 1996, or after November 18, 1996.
following conditions applies to you.
Multiple-lives annuity. If your annuity is payable for
the lives of more than one annuitant, use Table 2 at the
a. You are under age 75.
bottom of the worksheet to determine the total number of
b. You are entitled to less than 5 years of guaran-
expected monthly payments. Enter on line 3 the number
teed payments.
shown for the annuitants’ combined ages on the annuity
starting date. For an annuity payable to you as the primary
annuitant and to more than one survivor annuitant, com-
Guaranteed payments. Your annuity contract provides
bine your age and the age of the youngest survivor annui-
guaranteed payments if a minimum number of payments
tant. For an annuity that has no primary annuitant and is
or a minimum amount (for example, the amount of your
payable to you and others as survivor annuitants, combine
investment) is payable even if you and any survivor annui-
the ages of the oldest and youngest annuitants. Do not
tant do not live to receive the minimum. If the minimum
treat as a survivor annuitant anyone whose entitlement to
amount is less than the total amount of the payments you
payments depends on an event other than the primary
are to receive, barring death, during the first 5 years after
annuitant’s death.
payments begin (figured by ignoring any payment in-
creases), you are entitled to less than 5 years of guaran-
However, if your annuity starting date is before 1998, do
teed payments.
not use Table 2 and do not combine the annuitants’ ages.
Instead, you must use Table 1 at the bottom of the work-
Annuity starting before November 19, 1996. If your
sheet and enter on line 3 the number shown for the primary
annuity starting date is after July 1, 1986, and before
annuitant’s age on the annuity starting date. This number
November 19, 1996, and you chose to use the Simplified
will differ depending on whether your annuity starting date
Method, you must continue to use it each year that you
is before November 19, 1996, or after November 18, 1996.
recover part of your cost. You could have chosen to use
Fixed-period annuity. If your annuity does not depend
the Simplified Method if your annuity is payable for your life
on anyone’s life expectancy, the total number of expected
(or the lives of you and your survivor annuitant) and you
monthly payments to enter on line 3 of the worksheet is the
met both of the conditions listed earlier for annuities start-
number of monthly annuity payments under the contract.
ing after November 18, 1996 (under Who must use the
Simplified Method).
Example. Bill Smith, age 65, began receiving retire-
ment benefits in 2004 under a joint and survivor annuity.
Who cannot use the Simplified Method. You cannot
Bill’s annuity starting date is January 1, 2004. The benefits
use the Simplified Method if you receive your pension or
are to be paid for the joint lives of Bill and his wife, Kathy,
annuity from a nonqualified plan or otherwise do not meet
age 65. Bill had contributed $31,000 to a qualified plan and
the conditions described in the preceding discussion. See
had received no distributions before the annuity starting
General Rule, later.
date. Bill is to receive a retirement benefit of $1,200 a
month, and Kathy is to receive a monthly survivor benefit of
How to use the Simplified Method. Complete the work-
$600 upon Bill’s death.
sheet in the back of this publication to figure your taxable
Bill must use the Simplified Method to figure his taxable
annuity for 2004. Be sure to keep the completed work-
sheet; it will help you figure your taxable annuity next year.
annuity because his payments are from a qualified plan
and he is under age 75. Because his annuity is payable
To complete line 3 of the worksheet, you must deter-
over the lives of more than one annuitant, he uses his and
mine the total number of expected monthly payments for
Kathy’s combined ages and Table 2 at the bottom of the
your annuity. How you do this depends on whether the
worksheet in completing line 3 of the worksheet. His com-
annuity is for a single life, multiple lives, or a fixed period.
pleted worksheet is shown on the next page.
For this purpose, treat an annuity that is payable over the
Bill’s tax-free monthly amount is $100 ($31,000 ÷ 310 as
life of an annuitant as payable for that annuitant’s life even
if the annuity has a fixed-period feature or also provides a
shown on line 4 of the worksheet). Upon Bill’s death, if Bill
temporary annuity payable to the annuitant’s child under
has not recovered the full $31,000 investment, Kathy will
age 25.
also exclude $100 from her $600 monthly payment. The
Page 11
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