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• A FIXED SUM payable to a person at specified intervals for a specific PERIOD of time or for LIFE.
• Payments represent a partial return of capital and a return on the capital investment.


The owner or RECIPIENT of funds in an account, such as an IRA, or from an insurance policy or will.


• GIFT to a qualified charitable organization, generally deductible on Schedule A.
• Money placed in a retirement fund such as an IRA or an employer-maintained RETIREMENT PLAN.

Defined Benefit Plan

• An employee benefit plan that provides determinable benefits not based on employer profits.
• The most common type of deferred benefit plan is a pension plan.

Defined Contribution Plan

• An employee benefit plan that provides a separate account for each person covered and pays benefits based on account earnings.
• Examples include 401(k) plans and profit-sharing plans.

Disability Pension

• A taxable pension from an employer-funded disability plan or a disability provision of a retirement plan.
• Until the recipient reaches normal retirement age, usually reported on line 7 or Forms 1040 or 1040A and treated as wages for purposes of the child care, child tax, and earned income credits.


Money or property a taxpayer RECEIVES from a retirement plan such as an IRA or an employer-maintained retirement plan.

Minimum Retirement Age

Varies depending on the plan.
• Social Security is 62
• IRA is 59 1/2
• Plan defined by the employer


• Payments RECEIVED periodically of a definite amount for a specified period (usually life) from an employer-maintained PLAN to workers who have met the stated requirements.
• It's primary purpose is to provide RETIREMENT INCOME.


• A qualified TRANSFER of funds from one tax-favored account to another, usually of the same type.
• A rollover must take place within 60 days of receiving the funds.

Roth IRA

A type of IRA in which contributions are not tax deductible, earnings grow tax deferred and qualified withdrawals are TAX FREE.

Traditional IRA

• Contributions may or may not be deductible depending on the taxpayer's AGI and whether or not he is covered under an employer-sponsored retirement plan.
• Earnings grow tax-deferred.
• Distributions are taxable except to the extent they represent nondeductible contributions.

SS: Taxation of Benefits

• Up to 80% of SS may be taxable. Usually none is taxable if SS is the only source of income.
• Forms SSA-1099 and RRB-1099 notify the client of total benefits received.

SS: Earnings Limit

• The limit above which some benefits may need to be repaid is $37,680 for taxpayers who reached full retirement age in 2009.
• There is no earnings limit for recipients who reached full retirement age before 2009.

SS: Computing Taxable Benefits

• The amount subject to federal tax varies from 0 to 85% depending on filing status and income.
• Based on MAGI, increased by one-half of the net benefits received.

SS: Modified AGI Calculation:

Sum of the following:
• Regular AGI
• Any excluded employer-provided adoption benefits
• Tax-exempt interest
• Any interest from qualified US Savings Bonds excluded because the taxpayer has qualified education costs.
• Any excluded foreign earned income or housing allowance or certain US possession income
• Any student loan interest deduction
• Any tuition and fees deduction
• Any domestic production activities deduction

PA: Total Distribution

• All the taxpayers assets in the fund are distributed.
• A total distribution may qualify as a lump-sum distribution, eligible for the 10-year averaging/capital gain election. See Form 4972 or Pub 575.

PA: Distribution Codes (1-A):

The more common codes:
1 - Early distribution, no known exception to penalty applies.
2 - Early distribution, exception to penalty applies
3 - Disability
4 - Death
7 - Normal distribution
A - May qualify for 10-year averaging and/or capital gain election

PA: Distribution Codes (G-T):

G - Direct rollover to a qualified retirement plan, tax-sheltered annuity, 457(b) plan or IRA.
J - Early distribution from a Roth IRA, no known exception to penalty applies.
Q - Qualified distribution from a Roth IRA
T - Roth IRA distribution due to death or disability, or taxpayer has reached age 59 1/2, but the payer does not know if the five-year holding period was met.

PA: Simplified Method Computation

MUST be used if the starting date is after November 18, 1996.
MAY be used to compute the taxable portion of a pension or annuity with a starting date after July 1, 1986 if the following TWO conditions are met:
• The payments must be from a qualified pension, profit-sharing or stock bonus plan; a qualified employee annuity plan; or a tax-sheltered annuity.
• The annuitant (receiver) must be under 75 when the payments begin, or if 75 or older there must be fewer than five years of guaranteed payments.

PA: Partly Taxable Pensions

• With starting dates after December 31, 1986, part of each payment received is excludible until the taxpayer has recovered his cost.
• Once the cost is recovered, the pension or annuity is fully taxable.
• If the taxpayer dies before the cost has been fully recovered, the unrecovered amount is deducted on the final return as a misc itemized deduction not subject to the 2% limitation.

PA: General Rule For Calculation

• MAY be used if the taxpayer started receiving payments before November 19, 1996.
• If the taxpayer started receiving payments on or after that date, the SIMPLIFIED method MUST be used.
• For purchased annuities and other nonqualified plans, the general rule MUST be used regardless of stating date.

PA: Additional Caveats

• For P+A starting after July 1, 1986, and before November 19, 1996, both the payer and the recipient had the choice of using the general rule or the simplified method.
• The selected method generally must be used for all years of the pension.

IRA Distributions From Traditional IRAs

• Usually shown on Form 1099-R as fully taxable because the IRA trustee does not know how much if any of the taxpayer's IRA contributions were nondeductible.
• If any nondeductible contributions had been made, the taxpayer MUST use Form 8606 to compute the taxable portion of any distributions.

IRA Distributions From Roth IRAs

• Qualified distributions are exempt from tax.
• A qualified distribution is one that:
(a) Is taken after the end of the five-year period that began January 1 of the tax year for which the account was set up
(b) Is made after the account owner has died, become disabled, reached age 59 1/2, or is used to buy, build, or rebuild the taxpayer's first home.

Full Retirement Age

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