Publication 575 - Pension And Annuity Income - 2004 Page 13
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36•
General Rule
Certain loans. See Loans Treated as Distributions,
later.
Under the General Rule, you determine the tax-free part of
•
The value of annuity contracts transferred without
each annuity payment based on the ratio of the cost of the
full and adequate consideration. See Transfers of
contract to the total expected return. Expected return is the
Annuity Contracts, later.
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.
Corrective distributions of excess plan contributions.
If the contributions made for you during the year to certain
Who must use the General Rule. You must use the
retirement plans exceed certain limits, the excess is tax-
General Rule if you receive pension or annuity payments
able to you. To correct an excess, your plan may distribute
from:
it to you (along with any income earned on the excess).
•
A nonqualified plan (such as a private annuity, a
Although the plan reports the corrective distributions on
purchased commercial annuity, or a nonqualified
Form 1099-R, the distribution is not treated as a nonperi-
employee plan), or
odic distribution from the plan. It is not subject to the
allocation rules explained in the following discussion, it
•
A qualified plan if you are age 75 or older on your
cannot be rolled over into another plan, and it is not subject
annuity starting date and your annuity payments are
to the additional tax on early distributions.
guaranteed for at least 5 years.
If your retirement plan made a corrective distribu-
TIP
Annuity starting before November 19, 1996. If your
tion of excess contributions (excess deferrals,
annuity starting date is after July 1, 1986, and before
excess contributions, or excess annual addi-
November 19, 1996, you had to use the General Rule for
tions), your Form 1099-R should have the code “8,” “D,”
either circumstance just described. You also had to use it
“P,” or “E” in box 7.
for any fixed-period annuity. If you did not have to use the
For information on plan contribution limits and how to
General Rule, you could have chosen to use it. If your
report corrective distributions of excess contributions, see
annuity starting date is before July 2, 1986, you had to use
Retirement Plan Contributions under Employee Compen-
the General Rule unless you could use the Three-Year
sation in Publication 525.
Rule.
If you had to use the General Rule (or chose to use it),
Figuring the Taxable Amount
you must continue to use it each year that you recover your
cost.
How you figure the taxable amount of a nonperiodic distri-
bution depends on whether it is made before the annuity
Who cannot use the General Rule. You cannot use the
starting date or on or after the annuity starting date. If it is
General Rule if you receive your pension or annuity from a
made before the annuity starting date, its tax treatment
qualified plan and none of the circumstances described in
also depends on whether it is made under a qualified or
the preceding discussions apply to you. See Simplified
nonqualified plan and, if it is made under a nonqualified
Method, earlier.
plan, whether it fully discharges the contract or is allocable
More information. For complete information on using the
to an investment you made before August 14, 1982.
General Rule, including the actuarial tables you need, see
You may be able to roll over the taxable amount
Publication 939.
TIP
of a nonperiodic distribution from a qualified re-
tirement plan into another qualified retirement
plan or an IRA tax free. See Rollovers, later. If you do not
Taxation of
make a tax-free rollover and the distribution qualifies as a
Nonperiodic Payments
lump-sum distribution, you may be able to elect an optional
method of figuring the tax on the taxable amount. See
Lump-Sum Distributions, later.
This section of the publication explains how any nonperi-
odic distributions you receive under a pension or annuity
Annuity starting date. The annuity starting date is either
plan are taxed. Nonperiodic distributions are also known
the first day of the first period for which you receive an
as amounts not received as an annuity. They include all
annuity payment under the contract or the date on which
payments other than periodic payments and corrective
the obligation under the contract becomes fixed, which-
distributions.
ever is later.
For example, the following items are treated as nonperi-
Distributions of employer securities. If you receive a
odic distributions.
distribution of employer securities from a qualified retire-
•
Cash withdrawals.
ment plan, you may be able to defer the tax on the net
•
Distributions of current earnings (dividends) on your
unrealized appreciation (NUA) in the securities. The NUA
investment. However, do not include these distribu-
is the increase in the securities’ value while they were in
tions in your income to the extent the insurer keeps
the trust. This tax deferral applies to distributions of the
them to pay premiums or other consideration for the
employer corporation’s stocks, bonds, registered deben-
contract.
tures, and debentures with interest coupons attached.
Page 13
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