Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits - 2002 Page 8
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28The taxable part of the lump-sum payment does not
taxable part of the lump-sum payment and his net cost in
qualify as a lump-sum distribution eligible for capital gain
the plan. That worksheet is shown below.
treatment or the 10-year tax option. It also may be subject
to an additional 10% tax on early distributions if you sepa-
Lump-sum payment in installments. If you choose the
rate from service before the calendar year in which you
alternative annuity option, you usually will receive the
reach age 55. For more information, see Lump-Sum Distri-
lump-sum payment in two equal installments. You will
butions and Tax on Early Distributions in Publication 575.
receive the first installment after you make the choice upon
retirement. The second installment will be paid to you, with
Worksheet B. Use Worksheet B, Worksheet for
interest, in the next calendar year. (Exceptions to the
Lump-Sum Payment (near the end of this publication), to
installment rule are provided for cases of critical medical
figure the taxable part of your lump-sum payment. Be sure
need.)
to keep the completed worksheet for your records.
Even though the lump-sum payment is made in install-
To complete the worksheet, you will need to know the
ments, the overall tax treatment (explained at the begin-
amount of your lump-sum credit and the present value
ning of this discussion) is the same as if the whole payment
of your annuity contract.
were paid at once. If the payment has a tax-free part, you
must treat the taxable part as received first.
Lump-sum credit. Generally, this is the same amount
as the lump-sum payment you receive (the total of your
How to report. Add any actual or deemed payment of
contributions to the retirement system and interest on
your lump-sum credit (defined earlier) to the total for line
those contributions). However, for purposes of the alterna-
16a, Form 1040, or line 12a, Form 1040A. Add the taxable
tive annuity option, your lump-sum credit also may include
part to the total for line 16b, Form 1040, or line 12b, Form
deemed deposits and redeposits that OPM advanced to
1040A, unless you roll over the taxable part to a traditional
your retirement account so that you are given credit for the
IRA or a qualified retirement plan.
service they represent. Deemed deposits (including inter-
est) are for federal employment during which no retirement
If you receive the lump-sum payment in two install-
contributions were taken out of your pay. Deemed rede-
ments, include any interest paid with the second install-
posits (including interest) are for any refunds of retirement
ment on line 8a of either Form 1040 or Form 1040A.
contributions that you received and did not repay. You are
treated as if you had received a lump-sum payment equal
Reduced Annuity
to the amount of your lump-sum credit and then had made
a repayment to OPM of the advanced amounts.
If you have chosen to receive a lump-sum payment under
Present value of your annuity contract. The present
the alternative annuity option, you also will receive reduced
value of your annuity contract is figured using actuarial
monthly annuity payments. These annuity payments each
tables provided by the IRS.
will have a tax-free and a taxable part. To figure the
tax-free part of each annuity payment, you must use the
To find out the present value of your annuity
Simplified Method (Worksheet A). For instructions on how
contract, call the IRS Actuarial Projects Group at
to complete the worksheet, see Worksheet A under Simpli-
202 –283 –9717 (not a toll-free call).
fied Method, earlier.
To complete line 2 of Worksheet A, you must reduce
Example. David Brown retired from the federal govern-
your cost in the plan by the tax-free part of the lump-sum
ment in 2002, one month after his 55th birthday. He had
payment you received. Enter as your net cost on line 2 the
contributed $31,000 to his retirement plan and chose to
amount from line 5 of Worksheet B. Do not include the
receive a lump-sum payment of that amount under the
tax-free part of the lump-sum payment with other amounts
alternative annuity option. The present value of his annuity
recovered tax free (line 6 of Worksheet A) when limiting
contract was $155,000. Using Worksheet B, he figures the
your total exclusion to your total cost.
Filled-In Worksheet B. Lump-Sum Payment for David Brown
Keep for Your Records
See the instructions in Part II of this publication under Alternative Annuity Option.
1. Enter your lump-sum credit (your cost in the plan at the annuity starting date) . . . . . . . . . 1.
$
31,000
2. Enter the present value of your annuity contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
155,000
3. Divide line 1 by line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
.20
4. Tax-free amount. Multiply line 1 by line 3. (Caution: Do not include this amount on line 6
of Worksheet A in this publication.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
$
6,200
5. Taxable amount (net cost in the plan). Subtract line 4 from line 1. Include this amount
in the total on line 16b of Form 1040 or line 12b of Form 1040A. Also, enter this amount
on line 2 of Worksheet A in this publication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
$
24,800
Page 8
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