Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits - 2011 Page 24
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31Surviving spouse with child. If the survivor benefits in-
Worksheet E. Lump-Sum Payment at
clude both a life annuity for the surviving spouse and one
End of Retiree’s Annuity
or more temporary annuities for the retiree’s children, the
(With No Survivor
tax-free monthly amount that would otherwise apply to the
Annuity)
life annuity must be allocated among the beneficiaries. To
Keep for Your Records
figure the tax-free monthly amount for each beneficiary,
multiply it by a fraction. The numerator of the fraction is the
1. Enter the lump-sum payment . . . . . . . 1.
beneficiary’s monthly annuity and the denominator of the
2. Enter the amount of annuity received
fraction is the total of the monthly annuity payments to all
tax free by the retiree . . . . . . . . . . . . . 2.
the beneficiaries.
3. Add lines 1 and 2 . . . . . . . . . . . . . . . 3.
4. Enter the total cost . . . . . . . . . . . . . . 4.
Example. John retired in 2009 and began receiving a
5. Taxable amount. Subtract line 4 from
line 3. Enter the result, but not less
$1,147 per month CSRS retirement annuity with a survivor
than zero . . . . . . . . . . . . . . . . . . . . . 5.
annuity payable to his wife, Kate, upon his death. He
reported his annuity using the Simplified Method. Under
The taxable amount, if any, generally cannot be rolled
that method, $150 of each payment he received was a
over into an IRA or other plan and is subject to federal
tax-free recovery of his $45,000 cost. John received a total
income tax withholding at a 10% rate. However, a non-
of 22 monthly payments and recovered $3,300 of his cost
spousal beneficiary making a transfer described under
tax free before his death in 2011. At John’s death, Kate
Rollovers by nonspouse beneficiary
under Rollover Rules
began receiving an annuity of $840 per month and their
in Part II, can roll over any taxable amount. In addition, the
children, Sam and Lou, began receiving temporary annui-
payment may qualify as a lump-sum distribution eligible for
ties of $330 each per month. Kate must allocate the $150
capital gain treatment or the 10-year tax option if the plan
participant was born before January 2, 1936. If the benefi-
tax-free monthly amount among the three annuities.
ciary also receives a lump-sum payment of unrecovered
To find how much of the monthly exclusion to allocate to
voluntary contributions plus interest, this treatment applies
her own annuity, Kate multiplies the $150 tax-free monthly
only if the payment is received within the same tax year.
amount by the fraction $840 (her monthly annuity) over
For more information, see Lump-Sum Distributions in Pub-
$1,500 (the total of her $840, Sam’s $330, and Lou’s $330
lication 575.
monthly annuities). Her resulting monthly exclusion is $84.
In allocating the $150 monthly exclusion to each child’s
Voluntary Contributions
annuity, the $150 is multiplied by the fraction $330 (each
child’s monthly annuity) over $1,500. Each child’s resulting
If you receive an additional survivor annuity benefit from
monthly exclusion is $33.
voluntary contributions to the CSRS, treat it separately
Beginning with the month in which either child is no
from the annuity that comes from regular contributions.
longer eligible for an annuity, Kate will reallocate the $150
Each year you will receive a Form CSF 1099R that will
monthly exclusion to her own annuity by multiplying the
show how much of your total annuity received in the past
year was from each type of benefit.
$150 by the fraction $840 over $1,170 (the total of her $840
Figure the taxable and tax-free parts of your additional
and her other child’s $330 monthly annuities). Her resulting
survivor annuity benefit from voluntary contributions using
monthly exclusion is $108. In reallocating the $150
the same rules that apply to regular CSRS and FERS
monthly exclusion to the other child’s annuity, the $150 is
survivor annuities, as explained earlier under
CSRS or
multiplied by the fraction $330 over $1,170. The other
FERS Survivor
Annuity.
child’s resulting monthly exclusion is $42.
Lump-sum payment. Figure the taxable amount, if any,
of a lump-sum payment of the retiree’s unrecovered volun-
Surviving child only. If the survivor benefits include only
tary contributions plus any interest using the rules that
a temporary annuity for the retiree’s child, allocate the
apply to regular lump-sum CSRS or FERS payments, as
unrecovered cost over the number of months from the date
explained earlier under
Lump-Sum CSRS or FERS Pay-
the annuity started until the child reaches age 22. If more
ment.
than one temporary annuity is paid, allocate the cost over
the number of months until the youngest child reaches age
Thrift Savings Plan
22, and allocate the tax-free monthly amount among the
annuities in proportion to the monthly annuity payments.
If you receive a payment from the TSP account of a
deceased federal retiree, the payment is fully taxable.
Lump-Sum CSRS or FERS Payment
However, if you are the retiree’s surviving spouse (or
someone other than the retiree’s spouse making a transfer
If a deceased retiree has no beneficiary eligible to receive
described under
Rollovers by nonspouse beneficiary
in
a survivor annuity, and the deceased retiree’s annuity ends
Part II earlier under Rollover Rules), you generally can roll
before an amount equal to the deceased retiree’s contribu-
over the otherwise taxable payment tax free. If you do not
tions plus any interest has been paid out, the rest of the
choose a direct rollover of the TSP account, mandatory
contributions plus any interest will be paid in a lump sum to
20% federal income tax withholding will apply. For more
the estate or other beneficiary. The estate or other benefi-
information, see
Rollover Rules
in Part II. If you are neither
ciary rarely will have to include any part of the lump sum in
the surviving spouse nor someone other than the retiree’s
gross income. The taxable amount is figured as follows.
spouse making a transfer described above, the payment is
Page 24
Publication 721 (2011)
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