Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits - 2002 Page 6
ADVERTISEMENT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28Line 2. See Your cost, earlier, for an explanation of your
before July 2, 1986, you could have chosen to use the
cost in the plan. If your annuity starting date is after No-
General Rule only if you could not use the Three-Year
vember 18, 1996, and you chose the alternative annuity
Rule.
option (explained later), you must reduce your cost by the
Under the General Rule, you figure the tax-free part of
tax-free part of the lump-sum payment you received.
each full monthly payment by multiplying the initial gross
monthly rate of your annuity by an exclusion percentage.
Line 3. Find the appropriate number from one of the
Figuring this percentage is complex and requires the use
tables at the bottom of the worksheet. If your annuity
of actuarial tables. For these tables and other information
starting date is after 1997, use:
about using the General Rule, see Publication 939.
•
Table 1 for an annuity without a survivor benefit, or
•
Three-Year Rule
Table 2 for an annuity with a survivor benefit.
If your annuity starting date is before 1998, use Table 1.
If your annuity starting date was before July 2, 1986, you
probably had to report your annuity using the Three-Year
Line 6. If you retired before 2002, the amount previ-
Rule. Under this rule, you excluded all the annuity pay-
ously recovered tax free that you must enter on line 6 is the
ments from income until you fully recovered your cost.
total amount from line 10 of last year’s worksheet. If your
After your cost was recovered, all payments became fully
annuity starting date is before November 19, 1996, and
taxable. You cannot use another rule to again exclude
you chose the alternative annuity option, it includes the
amounts from income.
tax-free part of the lump-sum payment you received.
The Three-Year Rule was repealed for retirees whose
annuity starting date is after July 1, 1986.
Example. Bill Kirkland retired from the federal govern-
ment on April 30, 2002, under an annuity that will provide a
Alternative Annuity Option
survivor benefit for his wife, Kathy. His annuity starting
date is May 3, 2002. He must use the Simplified Method to
If you are a nondisability retiree under either CSRS or
figure the tax-free part of his annuity benefits.
FERS, you may be able to choose the alternative annuity
Bill’s monthly annuity benefit is $1,000. He had contrib-
option. This option generally is available only to retirees
uted $31,000 to his retirement plan and had received no
with certain life-threatening illnesses or other critical medi-
distributions before his annuity starting date. At his annuity
cal conditions. If you choose this option, you will receive a
starting date, he was 65 and Kathy was 57.
lump-sum payment equal to your total regular contribu-
Bill’s completed Worksheet A is shown on the next
tions to the retirement plan plus any interest that applies.
page. To complete line 3, he used Table 2 at the bottom of
Your monthly annuity is then reduced by about 5 to 15
the worksheet and found the number in the second column
percent to adjust for this payment.
opposite the age range that includes 122 (his and Kathy’s
combined ages). Bill keeps a copy of the completed work-
sheet for his records. It will help him (and Kathy, if she
Lump-Sum Payment
survives him) figure the taxable amount of the annuity in
later years.
The lump-sum payment you receive under the alternative
Bill’s tax-free monthly amount is $100. (See line 4 of the
annuity option generally has a tax-free part and a taxable
worksheet.) If he lives to collect more than 310 monthly
part. The tax-free part represents part of your cost. The
payments, he will have to include in his gross income the
taxable part represents part of the earnings on your annu-
full amount of any annuity payments received after 310
ity contract. If your lump-sum credit (discussed later) in-
payments have been made.
cludes a deemed deposit or redeposit, the taxable amount
If Bill does not live to collect 310 monthly payments and
may be more than the lump-sum payment. You must
his wife begins to receive monthly payments, she also will
include the taxable part of the lump-sum payment in your
exclude $100 from each monthly payment until 310 pay-
income for the year you receive the payment unless you
ments (Bill’s and hers) have been collected. If she dies
roll it over into another qualified plan or a traditional IRA. If
before 310 payments have been made, a miscellaneous
you do not have OPM transfer the taxable amount to an
i t e m i z e d
d e d u c t i o n
( n o t
s u b j e c t
t o
t h e
IRA or other plan in a direct rollover, tax will be withheld at
2%-of-adjusted-gross-income limit) will be allowed for the
a 20% rate. See Rollover Rules, later, for information on
unrecovered cost on her final income tax return.
how to make a rollover.
OPM can make a direct rollover only up to the
General Rule
!
amount of the lump-sum payment. Therefore, to
defer tax on the full taxable amount if it is more
CAUTION
If your annuity starting date is after November 18, 1996,
than the payment, you must roll over the difference using
you cannot use the General Rule to figure the tax-free part
your own funds.
of your CSRS or FERS annuity. If your annuity starting
date is after July 1, 1986, but before November 19, 1996,
you could have chosen to use either the General Rule or
the Simplified Method. If your annuity starting date is
Page 6
ADVERTISEMENT
0 votes
Related Articles
Related forms
Related Categories
Parent category: Financial