Publication 575 - Pension And Annuity Income - 2002 Page 20
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34years. You can elect this treatment only once for any plan
to participation before 1974) to be $10,000. Robert elects
participant, and only if the plan participant was born before
20% capital gain treatment for this part. A filled-in copy of
1936.
Robert’s Form 1099 –R and Form 4972 follows. He enters
$10,000 on Form 4972, Part II, line 6, and $2,000 ($10,000
The ordinary income part of the distribution is the
× 20%) on Part II, line 7.
amount shown in box 2a of the Form 1099 – R given to you
by the payer, minus the amount, if any, shown in box 3.
The ordinary income part of the distribution is $140,000
You can also treat the capital gain part of the distribution
($150,000 minus $10,000). Robert elects to figure the tax
(box 3 of Form 1099 – R) as ordinary income for the
on this part using the 10-year tax option. He enters
10-year tax option if you do not choose capital gain treat-
$140,000 on Form 4972, Part III, line 8. Then he completes
ment for that part.
the rest of Form 4972 and includes the tax of $24,270 in
Complete Part III of Form 4972 to choose the 10-year
the total on line 42 of his Form 1040.
tax option. You must use the special tax rates shown in the
instructions for Part III to figure the tax.
Example 2. Mary Brown, who was born in 1935, sold
her business in 2002. She withdrew her entire interest in
the qualified profit-sharing plan she had set up as the sole
Examples
proprietor.
The following examples show how to figure the separate
The cash part of the distribution, $160,000, is all ordi-
tax on Form 4972.
nary income and is shown on her Form 1099 –R (see page
22). She chooses to figure the tax on this amount using the
Example 1. Robert Smith, who was born in 1933, re-
10-year tax option. Mary also received an annuity contract
tired from Crabtree Corporation in 2002. He withdrew the
as part of the distribution from the plan. Box 8, Form
entire amount to his credit from the company’s qualified
1099 –R, shows that the current actuarial value of the
pension plan. In December 2002, he received a total distri-
annuity was $10,000. She enters these figures on Form
bution of $175,000 ($25,000 of employee contributions
4972 (see page 23).
plus $150,000 of employer contributions and earnings on
all contributions).
After completing Form 4972, she includes the tax of
$28,070 in the total on line 42, Form 1040.
The payer gave Robert a Form 1099 –R, which shows
the capital gain part of the distribution (the part attributable
CORRECTED (if checked)
PAYER’S name, street address, city, state, and ZIP code
1
Gross distribution
OMB No. 1545-0119
Distributions From
Pensions, Annuities,
Retirement or
175000.00
$
2002
Profit-Sharing
Crabtree Corporation Employees’ Pension Plan
2a Taxable amount
Plans, IRAs,
1111 Main Street
Insurance
150000.00
1099-R
Contracts, etc.
Anytown, Texas 75000
$
Form
Copy B
2b
Taxable amount
Total
X
not determined
distribution
Report this
PAYER’S Federal identification
RECIPIENT’S identification
3 Capital gain (included
income on your
4 Federal income tax
number
number
in box 2a)
withheld
Federal tax
return. If this
10-0000000
002-00-3456
form shows
30000.00
10000.00
$
$
Federal income
tax withheld in
RECIPIENT’S name
5
Employee contributions
6
Net unrealized
or insurance premiums
appreciation in
box 4, attach
employer’s securities
this copy to
Robert C. Smith
your return.
25000.00
$
$
Street address (including apt. no.)
7
Distribution
IRA/
8 Other
SEP/
code
This information is
SIMPLE
911 Mill Way
being furnished to
7A
$
%
the Internal
City, state, and ZIP code
9a
Your percentage of total
9b Total employee contributions
Revenue Service.
$
Anytown, Texas 75000
%
distribution
Account number (optional)
10
State tax withheld
11
State/Payer’s state no.
12
State distribution
$
$
$
$
13 Local tax withheld
14 Name of locality
15
Local distribution
$
$
$
$
1099-R
Form
Department of the Treasury - Internal Revenue Service
Page 20
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