2016 Publication 575 P575

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Department of the Treasury
Internal Revenue Service

Publication 575
Cat. No. 15142B

Pension
and Annuity
Income
For use in preparing

2016 Returns

Contents
Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
General Information . . . . . . . . . . . . . . . . . . . .
Variable Annuities . . . . . . . . . . . . . . . . . . . .
Section 457 Deferred Compensation Plans . .
Disability Pensions . . . . . . . . . . . . . . . . . . .
Insurance Premiums for Retired Public Safety
Officers . . . . . . . . . . . . . . . . . . . . . . . . .
Railroad Retirement Benefits . . . . . . . . . . . .
Withholding Tax and Estimated Tax . . . . . . .

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Cost (Investment in the Contract) . . . . . . . . . . . . 10
Taxation of Periodic Payments . . . . . . . . . . . . . . 11
Fully Taxable Payments . . . . . . . . . . . . . . . . . . 11
Partly Taxable Payments . . . . . . . . . . . . . . . . . . 12
Taxation of Nonperiodic Payments
Figuring the Taxable Amount . . . .
Loans Treated as Distributions . .
Transfers of Annuity Contracts . . .
Lump-Sum Distributions . . . . . . .

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15
15
18
19
20

Rollovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Special Additional Taxes . . . . . . . . . . . . . . . . . . . 31
Tax on Early Distributions . . . . . . . . . . . . . . . . . 32
Tax on Excess Accumulation . . . . . . . . . . . . . . . 35
Survivors and Beneficiaries . . . . . . . . . . . . . . . . . 37
How To Get Tax Help . . . . . . . . . . . . . . . . . . . . . . 37
Worksheet A. Simplified Method . . . . . . . . . . . . . 41
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Reminders

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• IRS.gov (English)
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Jan 04, 2017

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Future developments. For the latest information about
developments related to Pub. 575, such as legislation
enacted after it was published, go to www.irs.gov/pub575.
Net investment income tax. For purposes of the net investment income tax (NIIT), net investment income
doesn't include distributions from a qualified retirement
plan (for example, 401(a), 403(a), 403(b), 408, 408A, or
457(b) plans). However, these distributions are taken into
account when determining the modified adjusted gross income threshold. Distributions from a nonqualified retirement plan are included in net investment income. See
Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information.
Expanded exception to the tax on early distributions
from a governmental plan for qualified public safety
employees. For tax years beginning after December 31,

2015, in addition to those employees described in Quali­
fied public safety employees, the definition is expanded to
include the following:
Federal law enforcement officers,
Federal customs and border protection officers,
Federal firefighters,
Air traffic controllers,
Nuclear materials couriers,
Members of the United States Capitol Police,
Members of the Supreme Court Police, and
Diplomatic security special agents of the United
States Department of State.
In addition, the exception to the tax is extended to distributions from governmental defined contribution plans, as
well as governmental defined benefit plans.
For more information, see Tax on Early Distributions
later.
Rollovers to SIMPLE retirement accounts. You can
roll over amounts from a qualified retirement plan (as described under Rollovers, later) or an IRA into a SIMPLE
retirement account as follows:
1. During the first 2 years of participation in a SIMPLE
retirement account, you may roll over amounts from
one SIMPLE retirement account into another SIMPLE
retirement account, and
2. After the first 2 years of participation in a SIMPLE retirement account, you may roll over amounts from a
SIMPLE retirement account, a qualified retirement
plan or an IRA into a SIMPLE retirement account.
For more information, see Rollovers later.
Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for
Missing & Exploited Children® (NCMEC). Photographs of
missing children selected by the Center may appear in
this publication on pages that would otherwise be blank.
You can help bring these children home by looking at the
photographs
and
calling
1-800-THE-LOST
(1-800-843-5678) if you recognize a child.

Introduction
This publication discusses the tax treatment of distributions you receive from pension and annuity plans and also
shows you how to report the income on your federal income tax return. How these distributions are taxed depends on whether they are periodic payments (amounts
received as an annuity) that are paid at regular intervals
over several years or nonperiodic payments (amounts not
received as an annuity).

Page 2

What is covered in this publication? This publication
contains information that you need to understand the following topics.
How to figure the tax-free part of periodic payments
under a pension or annuity plan, including using a
simple worksheet for payments under a qualified plan.
How to figure the tax-free part of nonperiodic payments from qualified and nonqualified plans, and how
to use the optional methods to figure the tax on
lump-sum distributions from pension, stock bonus,
and profit-sharing plans.
How to roll over certain distributions from a retirement
plan into another retirement plan or IRA.
How to report disability payments, and how beneficiaries and survivors of employees and retirees must report benefits paid to them.
How to report railroad retirement benefits.
When additional taxes on certain distributions may apply (including the tax on early distributions and the tax
on excess accumulation).
For additional information on how to report pen­

TIP sion or annuity payments on your federal income

tax return, be sure to review the instructions on
the back of Copies B, C, and 2 of the Form 1099­R that
you received and the instructions for Form 1040, lines 16a
and 16b (Form 1040A, lines 12a and 12b or Form
1040NR, lines 17a and 17b).
A “corrected” Form 1099­R replaces the corre­
sponding original Form 1099­R if the original
CAUTION Form 1099­R contained an error. Make sure you
use the amounts shown on the corrected Form 1099­R
when reporting information on your tax return.

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What isn't covered in this publication? The following
topics aren't discussed in this publication.
The General Rule. This is the method generally used
to determine the tax treatment of pension and annuity income from nonqualified plans (including commercial annuities). For a qualified plan, you generally can't use the
General Rule unless your annuity starting date is before
November 19, 1996. Although this publication will help
you determine whether you can use the General Rule, it
won't help you use it to determine the tax treatment of
your pension or annuity income. For that and other information on the General Rule, see Pub. 939, General Rule
for Pensions and Annuities.
Individual retirement arrangements (IRAs). Information on the tax treatment of amounts you receive from
an IRA is in Pub. 590-B, Distributions from Individual Retirement Arrangements (IRAs).
Civil service retirement benefits. If you are retired
from the federal government (regular, phased, or disability
retirement) or are the survivor or beneficiary of a federal
employee or retiree who died, get Pub. 721, Tax Guide to
U.S. Civil Service Retirement Benefits. Pub. 721 covers
the tax treatment of federal retirement benefits, primarily
Publication 575 (2016)

those paid under the Civil Service Retirement System
(CSRS) or the Federal Employees' Retirement System
(FERS). It also covers benefits paid from the Thrift Savings Plan (TSP).
Social security and equivalent tier 1 railroad retire­
ment benefits. For information about the tax treatment of
these benefits, see Pub. 915, Social Security and Equivalent Railroad Retirement Benefits. However, this publication (575) covers the tax treatment of the non-social security equivalent benefit portion of tier 1 railroad retirement
benefits, tier 2 benefits, vested dual benefits, and supplemental annuity benefits paid by the U.S. Railroad Retirement Board.
Tax­sheltered annuity plans (403(b) plans). If you
work for a public school or certain tax-exempt organizations, you may be eligible to participate in a 403(b) retirement plan offered by your employer. Although this publication covers the treatment of benefits under 403(b) plans
and discusses in-plan Roth rollovers from 403(b) plans to
designated Roth accounts, it doesn't cover other tax provisions that apply to these plans. For that and other information on 403(b) plans, see Pub. 571, Tax-Sheltered Annuity
Plans (403(b) Plans) For Employees of Public Schools
and Certain Tax-Exempt Organizations.
Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions.
You can send us comments from irs.gov/formspubs.
Click on “More Information” and then on “Give us feedback.”
Or you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
We respond to many letters by telephone. Therefore, it
would be helpful if you would include your daytime phone
number, including the area code, in your correspondence.
Although we cannot respond individually to each comment received, we do appreciate your feedback and will
consider your comments as we revise our tax products.
Ordering forms and publications. Visit irs.gov/
formspubs to download forms and publications. Otherwise, you can go to irs.gov/orderforms to order current
and prior-year forms and instructions. Your order should
arrive within 10 business days.
Tax questions. If you have a tax question not answered by this publication, check IRS.gov and How To
Get Tax Help at the end of this publication.

Useful Items

You may want to see:
Publication
524 Credit for the Elderly or the Disabled

Publication 575 (2016)

525 Taxable and Nontaxable Income
560 Retirement Plans for Small Business (SEP,
SIMPLE, and Qualified Plans)
571 Tax-Sheltered Annuity Plans (403(b) Plans) For
Employees of Public Schools and Certain
Tax-Exempt Organizations
590-A Contributions to Individual Retirement
Arrangements (IRAs)
590-B Distributions from Individual Retirement
Arrangements (IRAs)
721 Tax Guide to U.S. Civil Service Retirement
Benefits
915 Social Security and Equivalent Railroad
Retirement Benefits
939 General Rule for Pensions and Annuities
Form (and Instructions)
W-4P Withholding Certificate for Pension or Annuity
Payments
1099-R Distributions From Pensions, Annuities,
Retirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, etc.
4972 Tax on Lump-Sum Distributions
5329 Additional Taxes on Qualified Plans (Including
IRAs) and Other Tax-Favored Accounts
See How To Get Tax Help near the end of this publication
for information about getting publications and forms.

General Information
Definitions. Some of the terms used in this publication
are defined in the following paragraphs.
Pension. A pension is generally a series of definitely
determinable payments made to you after you retire from
work. Pension payments are made regularly and are
based on such factors as years of service and prior compensation.
Annuity. An annuity is a series of payments under a
contract made at regular intervals over a period of more
than 1 full year. They can be either fixed (under which you
receive a definite amount) or variable (not fixed). You can
buy the contract alone or with the help of your employer.
Qualified employee plan. A qualified employee plan
is an employer's stock bonus, pension, or profit-sharing
plan that is for the exclusive benefit of employees or their
beneficiaries and that meets Internal Revenue Code requirements. It qualifies for special tax benefits, such as tax
deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions
(if participants qualify). To determine whether your plan is
a qualified plan, check with your employer or the plan administrator.
Qualified employee annuity. A qualified employee
annuity is a retirement annuity purchased by an employer
Page 3

for an employee under a plan that meets Internal Revenue
Code requirements.
Designated Roth account. A designated Roth account is a separate account created under a qualified
Roth contribution program to which participants may elect
to have part or all of their elective deferrals to a 401(k),
403(b), or 457(b) plan designated as Roth contributions.
Elective deferrals that are designated as Roth contributions are included in your income. However, qualified distributions (explained later) aren't included in your income.
You should check with your plan administrator to determine if your plan will accept designated Roth contributions.
Tax­sheltered annuity plan. A tax-sheltered annuity
plan (often referred to as a 403(b) plan or a tax-deferred
annuity plan) is a retirement plan for employees of public
schools and certain tax-exempt organizations. Generally,
a tax-sheltered annuity plan provides retirement benefits
by purchasing annuity contracts for its participants.
Types of pensions and annuities. Pensions and annuities include the following types.
Fixed­period annuities.
You receive definite
amounts at regular intervals for a specified length of time.
Annuities for a single life. You receive definite
amounts at regular intervals for life. The payments end at
death.
Joint and survivor annuities. The first annuitant receives a definite amount at regular intervals for life. After
he or she dies, a second annuitant receives a definite
amount at regular intervals for life. The amount paid to the
second annuitant may or may not differ from the amount
paid to the first annuitant.
Variable annuities. You receive payments that may
vary in amount for a specified length of time or for life. The
amounts you receive may depend upon such variables as
profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund.
Disability pensions. You receive disability payments
because you retired on disability and haven't reached
minimum retirement age.
More than one program. You may receive employee
plan benefits from more than one program under a single
trust or plan of your employer. If you participate in more
than one program, you may have to treat each as a separate pension or annuity contract, depending upon the
facts in each case. Also, you may be considered to have
received more than one pension or annuity. Your former
employer or the plan administrator should be able to tell
you if you have more than one contract.
Example. Your employer set up a noncontributory
profit-sharing plan for its employees. The plan provides
that the amount held in the account of each participant will
be paid when that participant retires. Your employer also
set up a contributory defined benefit pension plan for its

Page 4

employees providing for the payment of a lifetime pension
to each participant after retirement.
The amount of any distribution from the profit-sharing
plan depends on the contributions (including allocated forfeitures) made for the participant and the earnings from
those contributions. Under the pension plan, however, a
formula determines the amount of the pension benefits.
The amount of contributions is the amount necessary to
provide that pension.
Each plan is a separate program and a separate contract. If you get benefits from these plans, you must account for each separately, even though the benefits from
both may be included in the same check.

!

CAUTION

Distributions from a designated Roth account are
treated separately from other distributions from
the plan.

Qualified domestic relations order (QDRO). A QDRO
is a judgment, decree, or order relating to payment of child
support, alimony, or marital property rights to a spouse,
former spouse, child, or other dependent of a participant
in a retirement plan. The QDRO must contain certain specific information, such as the name and last known mailing
address of the participant and each alternate payee, and
the amount or percentage of the participant's benefits to
be paid to each alternate payee. A QDRO may not award
an amount or form of benefit that isn't available under the
plan.
A spouse or former spouse who receives part of the
benefits from a retirement plan under a QDRO reports the
payments received as if he or she were a plan participant.
The spouse or former spouse is allocated a share of the
participant's cost (investment in the contract) equal to the
cost times a fraction. The numerator of the fraction is the
present value of the benefits payable to the spouse or former spouse. The denominator is the present value of all
benefits payable to the participant.
A distribution that is paid to a child or other dependent
under a QDRO is taxed to the plan participant.

Variable Annuities
The tax rules in this publication apply both to annuities
that provide fixed payments and to annuities that provide
payments that vary in amount based on investment results
or other factors. For example, they apply to commercial
variable annuity contracts, whether bought by an employee retirement plan for its participants or bought directly from the issuer by an individual investor. Under
these contracts, the owner can generally allocate the purchase payments among several types of investment portfolios or mutual funds and the contract value is determined by the performance of those investments. The
earnings aren't taxed until distributed either in a withdrawal or in annuity payments. The taxable part of a distribution is treated as ordinary income.
For information on the tax treatment of a transfer or exchange of a variable annuity contract, see Transfers of
Annuity Contracts under Taxation of Nonperiodic Pay­
ments, later.
Publication 575 (2016)

Net investment income tax. Annuities under a nonqualified plan are included in calculating your net investment
income for the net investment income tax (NIIT). For information see the Instructions for Form 8960, Net Investment
Income Tax — Individuals, Estates and Trusts.
Withdrawals. If you withdraw funds before your annuity
starting date and your annuity is under a qualified retirement plan, a ratable part of the amount withdrawn is tax
free. The tax-free part is based on the ratio of your cost
(investment in the contract) to your account balance under
the plan.
If your annuity is under a nonqualified plan (including a
contract you bought directly from the issuer), the amount
withdrawn is allocated first to earnings (the taxable part)
and then to your cost (the tax-free part). However, if you
bought your annuity contract before August 14, 1982, a
different allocation applies to the investment before that
date and the earnings on that investment. To the extent
the amount withdrawn doesn't exceed that investment and
earnings, it is allocated first to your cost (the tax-free part)
and then to earnings (the taxable part).
If you withdraw funds (other than as an annuity) on or
after your annuity starting date, the entire amount withdrawn is generally taxable.
The amount you receive in a full surrender of your annuity contract at any time is tax free to the extent of any
cost that you haven't previously recovered tax free. The
rest is taxable.
For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments, later. If you
withdraw funds from your annuity before you reach age 59
1
2, also see Tax on Early Distributions under Special Addi­
tional Taxes, later.
Annuity payments. If you receive annuity payments under a variable annuity plan or contract, you recover your
cost tax free under either the Simplified Method or the
General Rule, as explained under Taxation of Periodic
Payments, later. For a variable annuity paid under a qualified plan, you generally must use the Simplified Method.
For a variable annuity paid under a nonqualified plan (including a contract you bought directly from the issuer),
you must use a special computation under the General
Rule. For more information, see Variable annuities in Pub.
939 under Computation Under the General Rule.
Death benefits. If you receive a single-sum distribution
from a variable annuity contract because of the death of
the owner or annuitant, the distribution is generally taxable
only to the extent it is more than the unrecovered cost of
the contract. If you choose to receive an annuity, the payments are subject to tax as described above. If the contract provides a joint and survivor annuity and the primary
annuitant had received annuity payments before death,
you figure the tax-free part of annuity payments you receive as the survivor in the same way the primary annuitant did. See Survivors and Beneficiaries, later.

Section 457 Deferred
Compensation Plans
If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a
section 457 deferred compensation plan. If your plan is an
eligible plan, you aren't taxed currently on pay that is deferred under the plan or on any earnings from the plan's
investment of the deferred pay. You are generally taxed
on amounts deferred in an eligible state or local government plan only when they are distributed from the plan.
You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you.
Your 457(b) plan may have a designated Roth account
option. If so, you may be able to roll over amounts to the
designated Roth account or make contributions. Elective
deferrals to a designated Roth account are included in
your income. Qualified distributions (explained later) aren't
included in your income. See the Designated Roth ac­
counts discussion under Taxation of Periodic Payments,
later.
This publication covers the tax treatment of benefits under eligible section 457 plans, but it doesn't cover the
treatment of deferrals. For information on deferrals under
section 457 plans, see Retirement Plan Contributions under Employee Compensation in Pub. 525.
Is your plan eligible? To find out if your plan is an eligible plan, check with your employer. Plans that aren’t eligible section 457 plans include the following:
Bona fide vacation leave, sick leave, compensatory
time, severance pay, disability pay, or death benefit
plans.
Nonelective deferred compensation plans for nonemployees (independent contractors).
Deferred compensation plans maintained by
churches.
Length of service award plans for bona fide volunteer
firefighters and emergency medical personnel. An exception applies if the total amount paid to a volunteer
exceeds $3,000 for any year of service.

Disability Pensions
If you retired on disability, you generally must include in income any disability pension you receive under a plan that
is paid for by your employer. You must report your taxable
disability payments as wages on line 7 of Form 1040 or
Form 1040A or on line 8 of Form 1040NR until you reach
minimum retirement age. Minimum retirement age generally is the age at which you can first receive a pension or
annuity if you aren't disabled.
You may be entitled to a tax credit if you were per­

TIP manently and totally disabled when you retired.
For information on this credit, see Pub. 524.

Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension
Publication 575 (2016)

Page 5

or annuity. When you receive pension or annuity payments you are able to recover your cost or investment.
Your cost is generally your net investment in the plan as of
your annuity starting date. It doesn't include pre-tax contributions. For more information, see Cost (Investment in the
Contract) and Taxation of Periodic Payments, later.

doesn't reflect this exclusion. Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or
Form 1040NR, line 17a. Report the taxable amount on
Form 1040, line 16b; Form 1040A, line 12b; or Form
1040NR, line 17b. Enter “PSO” next to the appropriate line
on which you report the taxable amount.

Report the payments on Form 1040, lines 16a and 16b;
Form 1040A, lines 12a and 12b; or on Form 1040NR,
lines 17a and 17b.

If you are retired on disability and reporting your disability pension on line 7 of Form 1040 or Form 1040A, or
line 8 of Form 1040NR, include only the taxable amount
on that line and enter “PSO” and the amount excluded on
the dotted line next to the applicable line.

Disability payments for injuries incurred as a di­

TIP rect result of a terrorist attack directed against the

United States (or its allies) aren't included in in­
come. For more information about payments to survivors
of terrorist attacks, see Pub. 3920, Tax Relief for Victims
of Terrorist Attacks.
Military and government disability pensions. Certain
military and government disability pensions aren’t taxable.
Service­connected disability. You may be able to
exclude from income amounts you receive as a pension,
annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following
government services:
The armed forces of any country,
The National Oceanic and Atmospheric Administration,
The Public Health Service, or
The Foreign Service.

Insurance Premiums for Retired
Public Safety Officers
If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude
from income distributions made from your eligible retirement plan that are used to pay the premiums for accident
or health insurance or long-term care insurance. The premiums can be for coverage for you, your spouse, or dependents. The distribution must be made directly from the
plan to the insurance provider. You can exclude from income the smaller of the amount of the insurance premiums or $3,000. You can only make this election for
amounts that would otherwise be included in your income.
The amount excluded from your income can't be used to
claim a medical expense deduction.
is:

An eligible retirement plan is a governmental plan that
a qualified trust,
a section 403(a) plan,
a section 403(b) annuity, or
a section 457(b) plan.

If you make this election, reduce the otherwise taxable
amount of your pension or annuity by the amount
excluded. The amount shown in box 2a of Form 1099-R
Page 6

Railroad Retirement Benefits
Benefits paid under the Railroad Retirement Act fall into
two categories. These categories are treated differently
for income tax purposes.
The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a
railroad employee or beneficiary would have been entitled
to receive under the social security system. This part of
the tier 1 benefit is the social security equivalent benefit
(SSEB) and you treat it for tax purposes like social security benefits. If you received, repaid, or had tax withheld
from the SSEB portion of tier 1 benefits during 2016, you
will receive Form RRB-1099, Payments by the Railroad
Retirement Board (or Form RRB-1042S, Statement for
Nonresident Alien Recipients of Payments by the Railroad
Retirement Board, if you are a nonresident alien) from the
U.S. Railroad Retirement Board (RRB).
For more information about the tax treatment of the
SSEB portion of tier 1 benefits and Forms RRB-1099 and
RRB-1042S, see Pub. 915.
The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security
equivalent benefit (NSSEB). It also contains any tier 2
benefit, vested dual benefit (VDB), and supplemental annuity benefit. Treat this category of benefits, shown on
Form RRB-1099-R, as an amount received from a qualified employee plan. This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2
benefits and the NSSEB part of the tier 1 benefits. (The
NSSEB and tier 2 benefits, less certain repayments, are
combined into one amount called the Contributory
Amount Paid on Form RRB-1099-R.) Vested dual benefits
and supplemental annuity benefits are non-contributory
pensions and are fully taxable. See Taxation of Periodic
Payments, later, for information on how to report your benefits and how to recover the employee contributions tax
free. Form RRB-1099-R is used for U.S. citizens, resident
aliens, and nonresident aliens.
Nonresident aliens. A nonresident alien is an individual
who isn't a citizen or a resident alien of the United States.
Nonresident aliens are subject to mandatory U.S. tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. A tax
treaty exemption may reduce or eliminate tax withholding
from railroad retirement benefits. See Tax withholding
next for more information.
Publication 575 (2016)

If you are a nonresident alien and your tax withholding
rate changed or your country of legal residence changed
during the year, you may receive more than one Form
RRB-1042S or Form RRB-1099-R. To determine your total benefits paid or repaid and total tax withheld for the
year, you should add the amounts shown on all forms you
received for that year. For information on filing requirements for aliens, see Pub. 519, U.S. Tax Guide for Aliens.
For information on tax treaties between the United States
and other countries that may reduce or eliminate U.S. tax
on your benefits, see Pub. 901, U.S. Tax Treaties.
Tax withholding. To request or change your income tax
withholding from SSEB payments, U.S. citizens should
contact the IRS for Form W-4V, Voluntary Withholding Request, and file it with the RRB. To elect, revoke, or change
your income tax withholding from NSSEB, tier 2, VDB,
and supplemental annuity payments received, use Form
RRB W-4P, Withholding Certificate for Railroad Retirement Payments. If you are a nonresident alien or a U.S.
citizen living abroad, you should provide Form RRB-1001,
Nonresident Questionnaire, to the RRB to furnish citizenship and residency information and to claim any treaty exemption from U.S. tax withholding. Nonresident U.S. citizens can't elect to be exempt from withholding on
payments delivered outside of the United States.
Help from the RRB. To request an RRB form or to get
help with questions about an RRB benefit, you should
contact your nearest RRB field office if you reside in the
United States (call 1-877-772-5772 for the nearest field office) or U.S. consulate/Embassy if you reside outside the
United States. You can visit the RRB on the Internet at
https://secure.rrb.gov/
Form RRB-1099-R. The following discussion explains
the items shown on Form RRB-1099-R. The amounts
shown on this form are before any deduction for:
Federal income tax withholding,
Medicare premiums,
Legal process garnishment payments,
Recovery of a prior year overpayment of an NSSEB,
tier 2 benefit, VDB, or supplemental annuity benefit, or
Recovery of Railroad Unemployment Insurance Act
benefits received while awaiting payment of your railroad retirement annuity.
The amounts shown on this form are after any offset
for:
Social Security benefits,
Age reduction,
Public Service pensions or public disability benefits,
Dual railroad retirement entitlement under another
RRB claim number,
Work deductions,
Legal process partition deductions,
Actuarial adjustment,
Publication 575 (2016)

Annuity waiver, or
Recovery of a current-year overpayment of NSSEB,
tier 2, VDB, or supplemental annuity benefits.
The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or
the special 10-year tax option for lump-sum payments, or
tax-free rollovers. To determine if any of these rules apply
to your benefits, see the discussions about them later.
Generally, amounts shown on your Form RRB-1099-R
are considered a normal distribution. Use distribution
code “7” if you are asked for a distribution code. Distribution codes aren't shown on Form RRB-1099-R.
There are three copies of this form. Copy B is to be included with your income tax return if federal income tax is
withheld. Copy C is for your own records. Copy 2 is filed
with your state, city, or local income tax return, when required. See the illustrated Copy B (Form RRB-1099-R)
above.
Each beneficiary will receive his or her own Form

TIP RRB­1099­R. If you receive benefits on more than

one railroad retirement record, you may get more
than one Form RRB­1099­R. So that you get your form
timely, make sure the RRB always has your current mail­
ing address.
Box 1—Claim Number and Payee Code. Your claim
number is a six- or nine-digit number preceded by an alphabetical prefix. This is the number under which the RRB
paid your benefits. Your payee code follows your claim
number and is the last number in this box. It is used by the
RRB to identify you under your claim number. In all your
correspondence with the RRB, be sure to use the claim
number and payee code shown in this box.
Box 2—Recipient's Identification Number. This is
the recipient's U.S. taxpayer identification number. It is the
social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number
(EIN), if known, for the person or estate listed as the recipient.
If you are a resident or nonresident alien who

TIP must furnish a taxpayer identification number to

the IRS and aren’t eligible to obtain an SSN, use
Form W­7, Application for IRS Individual Taxpayer Identifi­
cation Number, to apply for an ITIN. The Instructions for
Form W­7 explain how and when to apply.
Box 3—Employee Contributions. This is the amount
of taxes withheld from the railroad employee's earnings
that exceeds the amount of taxes that would have been
withheld had the earnings been covered under the social
security system. This amount is the employee's cost that
you use to figure the tax-free part of the NSSEB and tier 2
benefit you received (the amount shown in box 4). (For information on how to figure the tax-free part, see Partly
Taxable Payments under Taxation of Periodic Payments,
later.) The amount shown is the total employee contribution amount, not reduced by any amounts that the RRB
calculated as previously recovered. It is the latest amount
reported for 2016 and may have increased or decreased
Page 7

2016

PAYER’S NAME, STREET ADDRESS, CITY, STATE, AND ZIP CODE

UNITED STATES RAILROAD RETIREMENT BOARD
844 N RUSH ST CHICAGO IL 60611-2092

ANNUITIES OR PENSIONS BY THE
RAILROAD RETIREMENT BOARD

3. Employee Contributions

PAYER’S FEDERAL IDENTIFYING NO.
1. Claim Number and Payee Code

4. Contributory Amount Paid

2. Recipient’s

5. Vested Dual

Number

Recipient’s Name, Street Address, City, State, and Zip Code

m
a
S

6. Supplemental Annuity
7. Total Gross Paid
(Sum

e
l
p

of boxes 4, 5, and 6)

8. Repayments

9. Federal Income Tax
Withheld
10. Rate of Tax

COPY B REPORT THIS INCOME ON
YOUR
FEDERAL
TAX
RETURN. IF THIS FORM
SHOWS FEDERAL INCOME
TAX WITHHELD IN BOX 9
ATTACH THIS COPY TO
YOUR RETURN.
THIS INFORMATION IS BEING
FURNISHED TO THE INTERNAL
REVENUE SERVICE.
11. Country

12. Medicare Premium Total

FORM RRB-1099-R
from a previous Form RRB-1099-R. If this amount has
changed, the change is retroactive. You may need to refigure the tax-free part of your NSSEB/tier 2 benefit for
2016 and prior tax years. If this box is blank, it means that
the amount of your NSSEB and tier 2 payments shown in
box 4 is fully taxable.
If you had a previous annuity entitlement that
ended and you are figuring the tax­free part of
CAUTION your NSSEB/tier 2 benefit for your current annuity
entitlement, you should contact the RRB for confirmation
of your correct employee contribution amount.

!

Box 4—Contributory Amount Paid. This is the gross
amount of the NSSEB and tier 2 benefit you received in
2016, less any 2016 benefits you repaid in 2016. (Any
benefits you repaid in 2016 for an earlier year or for an unknown year are shown in box 8.) This amount is the total
contributory pension paid in 2016. It may be partly taxable
and partly tax free or fully taxable. If you determine you
are eligible to compute a tax-free part as explained later in
Partly Taxable Payments under Taxation of Periodic Pay­
ments, use the latest reported employee contribution
amount shown in box 3 as the cost.
Box 5—Vested Dual Benefit. This is the gross
amount of vested dual benefit (VDB) payments paid in
2016, less any 2016 VDB payments you repaid in 2016. It
is fully taxable. VDB payments you repaid in 2016 for an
earlier year or for an unknown year are shown in box 8.
Note. The amounts shown in boxes 4 and 5 may represent payments for 2016 and/or other years after 1983.
Box 6—Supplemental Annuity. This is the gross
amount of supplemental annuity benefits paid in 2016,
less any 2016 supplemental annuity benefits you repaid in
2016. It is fully taxable. Supplemental annuity benefits you
repaid in 2016 for an earlier year or for an unknown year
are shown in box 8.
Page 8

Box 7—Total Gross Paid. This is the sum of boxes 4,
5, and 6. The amount represents the total pension paid in
2016. Include this amount on Form 1040, line 16a; Form
1040A, line 12a; or Form 1040NR, line 17a.
Box 8—Repayments. This amount represents any
NSSEB, tier 2 benefit, VDB, and supplemental annuity
benefit you repaid to the RRB in 2016 for years before
2016 or for unknown years. The amount shown in this box
hasn't been deducted from the amounts shown in boxes
4, 5, and 6. It only includes repayments of benefits that
were taxable to you. This means it only includes repayments in 2016 of NSSEB benefits paid after 1985, tier 2
and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. If you included the benefits
in your income in the year you received them, you may be
able to deduct the repaid amount. For more information
about repayments, see Repayment of benefits received in
an earlier year, later.
You may have repaid an overpayment of benefits

TIP by returning a payment, by making a payment, or

by having an amount withheld from your railroad
retirement annuity payment.
Box 9—Federal Income Tax Withheld. This is the
total federal income tax withheld from your NSSEB, tier 2
benefit, VDB, and supplemental annuity benefit. Include
this on your income tax return as tax withheld. If you are a
nonresident alien and your tax withholding rate and/or
country of legal residence changed during 2016, you will
receive more than one Form RRB-1099-R for 2016. Determine the total amount of U.S. federal income tax withheld
from your 2016 RRB NSSEB, tier 2, VDB, and supplemental annuity payments by adding the amounts in box 9
of all original 2016 Forms RRB-1099-R, or the latest corrected or duplicate Forms RRB-1099-R you receive.
Box 10—Rate of Tax. If you are taxed as a U.S. citizen or resident alien, this box doesn't apply to you. If you
Publication 575 (2016)

are a nonresident alien, an entry in this box indicates the
rate at which tax was withheld on the NSSEB, tier 2, VDB,
and supplemental annuity payments that were paid to you
in 2016. If you are a nonresident alien whose tax was withheld at more than one rate during 2016, you will receive a
separate Form RRB-1099-R for each rate change during
2016.
Box 11—Country. If you are taxed as a U.S. citizen or
resident alien, this box doesn't apply to you. If you are a
nonresident alien, an entry in this box indicates the country of which you were a resident for tax purposes at the
time you received railroad retirement payments in 2016. If
you are a nonresident alien who was a resident of more
than one country during 2016, you will receive a separate
Form RRB-1099-R for each country of residence during
2016.
Box 12—Medicare Premium Total. This is for information purposes only. The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in
2016. Medicare premium refunds aren't included in the
Medicare total. The Medicare total is normally shown on
Form RRB-1099 (if you are a citizen or resident alien of
the United States) or Form RRB-1042S (if you are a nonresident alien). However, if Form RRB-1099 or Form
RRB-1042S isn't required for 2016, then this total will be
shown on Form RRB-1099-R. If your Medicare premiums
were deducted from your social security benefits, paid by
a third party, refunded to you, and/or you paid the premiums by direct billing, your Medicare total won't be shown
in this box.
Repayment of benefits received in an earlier year. If
you had to repay any railroad retirement benefits that you
had included in your income in an earlier year because at
that time you thought you had an unrestricted right to it,
you can deduct the amount you repaid in the year in which
you repaid it.
If you repaid $3,000 or less in 2016, deduct it on
Schedule A (Form 1040), line 23. The 2%-of-adjusted-gross-income limit applies to this deduction. You can't
take this deduction if you file Form 1040A.
If you repaid more than $3,000 in 2016, you can either
take a deduction for the amount repaid on Schedule A
(Form 1040), line 28 or you can take a credit against your
tax. For more information, see Repayments in Pub. 525.

Withholding Tax
and Estimated Tax
Your retirement plan distributions are subject to federal income tax withholding. However, you can choose not to
have tax withheld on payments you receive unless they
are eligible rollover distributions. (These are distributions,
described later under Rollovers, that are eligible for rollover treatment but aren't paid directly to another qualified
retirement plan or to a traditional IRA.) If you choose not to
have tax withheld or if you don't have enough tax withheld,
you may have to make estimated tax payments. See Esti­
mated tax, later.
Publication 575 (2016)

The withholding rules apply to the taxable part of payments you receive from:
An employer pension, annuity, profit-sharing, or stock
bonus plan,
Any other deferred compensation plan,
A traditional individual retirement arrangement (IRA),
or
A commercial annuity.
For this purpose, a commercial annuity means an annuity,
endowment, or life insurance contract issued by an insurance company.
There will be no withholding on any part of a dis­

TIP tribution where it is reasonable to believe that it
won't be includible in gross income.

Choosing no withholding. You can choose not to have
income tax withheld from retirement plan payments unless
they are eligible rollover distributions. You can make this
choice on Form W-4P for periodic and nonperiodic payments. This choice generally remains in effect until you revoke it.
The payer will ignore your choice not to have tax withheld if:
You don't give the payer your social security number
(in the required manner), or
The IRS notifies the payer, before the payment is
made, that you gave an incorrect social security number.
To choose not to have tax withheld, a U.S. citizen or
resident alien must give the payer a home address in the
United States or its possessions. Without that address,
the payer must withhold tax. For example, the payer has
to withhold tax if the recipient has provided a U.S. address
for a nominee, trustee, or agent to whom the benefits are
delivered, but hasn't provided his or her own U.S. home
address.
If you don't give the payer a home address in the United States or its possessions, you can choose not to have
tax withheld only if you certify to the payer that you aren't a
U.S. citizen, a U.S. resident alien, or someone who left the
country to avoid tax. But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. This 30% rate won't apply if you are exempt
or subject to a reduced rate by treaty. For details, get Pub.
519.
Periodic payments. Unless you choose no withholding,
your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for
withholding purposes. Periodic payments are amounts
paid at regular intervals (such as weekly, monthly, or
yearly) for a period of time greater than 1 year (such as for
15 years or for life). You should give the payer a completed withholding certificate (Form W-4P or a similar form
provided by the payer). If you don't, tax will be withheld as
if you were married and claiming three withholding allowances.
Page 9

Tax will be withheld as if you were single and were
claiming no withholding allowances if:
You don't give the payer your social security number
(in the required manner), or
The IRS notifies the payer (before any payment is
made) that you gave an incorrect social security number.
You must file a new withholding certificate to change
the amount of withholding.
Nonperiodic distributions. Unless you choose no withholding, the withholding rate for a nonperiodic distribution
(a payment other than a periodic payment) that isn't an eligible rollover distribution is 10% of the distribution. You
can also ask the payer to withhold an additional amount
using Form W-4P. The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule.
Eligible rollover distribution. If you receive an eligible
rollover distribution, 20% of it generally will be withheld for
income tax. You can't choose not to have tax withheld
from an eligible rollover distribution. However, tax won't be
withheld if you have the plan administrator pay the eligible
rollover distribution directly to another qualified plan or an
IRA in a direct rollover. For more information about eligible
rollover distributions, see Rollovers, later.
Estimated tax. Your estimated tax is the total of your expected income tax, self-employment tax, and certain other
taxes for the year, minus your expected credits and withheld tax. Generally, you must make estimated tax payments for 2017 if you expect to owe at least $1,000 in tax
(after subtracting your withholding and credits) and you
expect your withholding and credits to be less than the
smaller of:
1. 90% of the tax to be shown on your 2017 return, or
2. 100% of the tax shown on your 2016 return.
If your adjusted gross income for 2016 was more than
$150,000 ($75,000 if your filing status for 2017 is married
filing separately), substitute 110% for 100% in (2) above.
For more information, get Pub. 505, Tax Withholding and
Estimated Tax.
In figuring your withholding or estimated tax, re­

TIP member that a part of your monthly social security

or equivalent tier 1 railroad retirement benefits
may be taxable. See Pub. 915. You can choose to have
income tax withheld from those benefits. Use Form W­4V
to make this choice.

Cost (Investment
in the Contract)
Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). If any part of a distribution is treated
Page 10

as a recovery of your cost under the rules explained in this
publication, that part is tax free. Therefore, the first step in
figuring how much of a distribution is taxable is to determine the cost of your pension or annuity.
In general, your cost is your net investment in the contract as of the annuity starting date (or the date of the distribution, if earlier). To find this amount, you must first figure the total premiums, contributions, or other amounts
you paid. This includes the amounts your employer contributed that were taxable to you when paid. (However,
see Foreign employment contributions, later.) It doesn't include amounts withheld from your pay on a tax-deferred
basis (money that was taken out of your gross pay before
taxes were deducted). It also doesn't include amounts you
contributed for health and accident benefits (including any
additional premiums paid for double indemnity or disability
benefits).
From this total cost you must subtract the following
amounts.
1. Any refunded premiums, rebates, dividends, or unrepaid loans that weren't included in your income and
that you received by the later of the annuity starting
date or the date on which you received your first payment.
2. Any other tax-free amounts you received under the
contract or plan by the later of the dates in (1).
3. If you must use the Simplified Method for your annuity
payments, the tax-free part of any single-sum payment received in connection with the start of the annuity payments, regardless of when you received it.
(See Simplified Method, later, for information on its required use.)
4. If you use the General Rule for your annuity payments, the value of the refund feature in your annuity
contract. (See General Rule, later, for information on
its use.) Your annuity contract has a refund feature if
the annuity payments are for your life (or the lives of
you and your survivor) and payments in the nature of
a refund of the annuity's cost will be made to your
beneficiary or estate if all annuitants die before a stated amount or a stated number of payments are
made. For more information, see Pub. 939.
The tax treatment of the items described in (1) through (3)
is discussed later under Taxation of Nonperiodic Pay­
ments.
Form 1099­R. If you began receiving periodic

TIP payments of a life annuity in 2016, the payer

should show your total contributions to the plan in
box 9b of your 2016 Form 1099­R.
Annuity starting date defined. Your annuity starting
date is the later of the first day of the first period for which
you received a payment or the date the plan's obligations
became fixed.
Example. On January 1, you completed all your payments required under an annuity contract providing for
Publication 575 (2016)

monthly payments starting on August 1 for the period beginning July 1. The annuity starting date is July 1. This is
the date you use in figuring the cost of the contract and
selecting the appropriate number from Table 1 for line 3 of
the Simplified Method Worksheet.
Designated Roth accounts. Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable
withholding requirements. Your cost will also include any
in-plan Roth rollovers you included in income.
Foreign employment contributions. If you worked
abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had
they been paid directly to you as compensation. The contributions that apply are:
1. Contributions before 1963 by your employer,
2. Contributions after 1962 by your employer if the contributions would be excludible from your gross income
(not including the foreign earned income exclusion)
had they been paid directly to you, or
3. Contributions after 1996 by your employer if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a
church or a lay person) but only if the contributions
would be excludible from your gross income had they
been paid directly to you.
Foreign employment contributions while a nonres­
ident alien. In determining your cost, special rules apply
if you are a U.S. citizen or resident alien who received distributions in 2016 from a plan to which contributions were
made while you were a nonresident alien. Your contributions and your employer's contributions aren't included in
your cost if the contribution:
Was made based on compensation which was for
services performed outside the United States while
you were a nonresident alien, and
Wasn't subject to income tax under the laws of the
United States or any foreign country, but only if the
contribution would have been subject to income tax if
paid as cash compensation when the services were
performed.

Taxation of
Periodic Payments
This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Periodic
payments are amounts paid at regular intervals (such as
weekly, monthly, or yearly) for a period of time greater
than 1 year (such as for 15 years or for life). These payments are also known as amounts received as an annuity.
If you receive an amount from your plan that isn't a periodic payment, see Taxation of Nonperiodic Payments,
later.
Publication 575 (2016)

In general, you can recover the cost of your pension or
annuity tax free over the period you are to receive the payments. The amount of each payment that is more than the
part that represents your cost is taxable (however, see In­
surance Premiums for Retired Public Safety Officers, earlier).
Designated Roth accounts. If you receive a qualified
distribution from a designated Roth account, the distribution isn't included in your gross income. This applies to
both your cost in the account and income earned on that
account. A qualified distribution is generally a distribution
that is:
Made after a 5-tax-year period of participation, and
Made on or after the date you reach age 591 2, made to
a beneficiary or your estate on or after your death, or
attributable to your being disabled.
If the distribution isn't a qualified distribution, the rules
discussed in this section apply. The designated Roth account is treated as a separate contract.
Period of participation. The 5-tax-year period of participation is the 5-tax-year period beginning with the first
tax year for which the participant made a designated Roth
contribution to the plan. Therefore, for designated Roth
contributions made for 2016, the first year for which a
qualified distribution can be made is 2021.
However, if a direct rollover is made to the plan from a
designated Roth account under another plan, the
5-tax-year period for the recipient plan begins with the first
tax year for which the participant first had designated Roth
contributions made to the other plan.
Your 401(k), 403(b), or 457(b) plan may permit you to
roll over amounts from those plans to a designated Roth
account within the same plan. This is known as an in-plan
Roth rollover. For more details, see In­plan Roth rollovers,
later.

Fully Taxable Payments
The pension or annuity payments that you receive are fully
taxable if you have no cost in the contract because any of
the following situations applies to you (however, see In­
surance Premiums for Retired Public Safety Officers, earlier).
You didn't pay anything or aren't considered to have
paid anything for your pension or annuity. Amounts
withheld from your pay on a tax-deferred basis aren't
considered part of the cost of the pension or annuity
payment.
Your employer didn't withhold contributions from your
salary.
You got back all of your contributions tax free in prior
years (however, see Exclusion not limited to cost under Partly Taxable Payments, later).
Report the total amount you received on Form 1040,
line 16b; Form 1040A, line 12b; or on Form 1040NR,
line 17b. You should make no entry on Form 1040,
Page 11

line 16a; Form 1040A, line 12a; or Form 1040NR,
line 17a.

riod begins on your annuity starting date and isn't affected
by the date you first complete the worksheet.

Deductible voluntary employee contributions. Distributions you receive that are based on your accumulated
deductible voluntary employee contributions are generally
fully taxable in the year distributed to you. Accumulated
deductible voluntary employee contributions include net
earnings on the contributions. If distributed as part of a
lump sum, they don't qualify for the 10-year tax option or
capital gain treatment, explained later.

Exclusion limited to cost. If your annuity starting
date is after 1986, the total amount of annuity income that
you can exclude over the years as a recovery of the cost
can't exceed your total cost. Any unrecovered cost at your
(or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent.
This deduction isn't subject to the 2%-of-adjusted-gross-income limit.

Partly Taxable Payments

Example 1. Your annuity starting date is after 1986,
and you exclude $100 a month ($1,200 a year) under the
Simplified Method. The total cost of your annuity is
$12,000. Your exclusion ends when you have recovered
your cost tax free, that is, after 10 years (120 months). After that, your annuity payments are generally fully taxable.

If you have a cost to recover from your pension or annuity
plan (see Cost (Investment in the Contract), earlier), you
can exclude part of each annuity payment from income as
a recovery of your cost. This tax-free part of the payment
is figured when your annuity starts and remains the same
each year, even if the amount of the payment changes.
The rest of each payment is taxable (however, see Insur­
ance Premiums for Retired Public Safety Officers, earlier).
You figure the tax-free part of the payment using one of
the following methods.
Simplified Method. You generally must use this
method if your annuity is paid under a qualified plan (a
qualified employee plan, a qualified employee annuity,
or a tax-sheltered annuity plan or contract). You can't
use this method if your annuity is paid under a nonqualified plan.
General Rule. You must use this method if your annuity is paid under a nonqualified plan. You generally
can't use this method if your annuity is paid under a
qualified plan.
You determine which method to use when you first begin
receiving your annuity, and you continue using it each
year that you recover part of your cost.
If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each
separately.
Qualified plan annuity starting before November 19,
1996. If your annuity is paid under a qualified plan and
your annuity starting date (defined earlier under Cost (In­
vestment in the Contract)) is after July 1, 1986, and before
November 19, 1996, you could have chosen to use either
the Simplified Method or the General Rule. If your annuity
starting date is before July 2, 1986, you use the General
Rule unless your annuity qualified for the Three-Year
Rule. If you used the Three-Year Rule (which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable.
Exclusion limit. Your annuity starting date determines
the total amount of annuity payments that you can exclude
from income over the years. Once your annuity starting
date is determined, it doesn't change. If you calculate the
taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. That recovery pePage 12

Example 2. The facts are the same as in Example 1,
except you die (with no surviving annuitant) after the
eighth year of retirement. You have recovered tax free
only $9,600 (8 × $1,200) of your cost. An itemized deduction for your unrecovered cost of $2,400 ($12,000 –
$9,600) can be taken on your final return.
Exclusion not limited to cost. If your annuity starting
date is before 1987, you can continue to take your
monthly exclusion for as long as you receive your annuity.
If you chose a joint and survivor annuity, your survivor can
continue to take the survivor's exclusion figured as of the
annuity starting date. The total exclusion may be more
than your cost.

Simplified Method
Under the Simplified Method, you figure the tax-free part
of each annuity payment by dividing your cost by the total
number of anticipated monthly payments. For an annuity
that is payable for the lives of the annuitants, this number
is based on the annuitants' ages on the annuity starting
date and is determined from a table. For any other annuity, this number is the number of monthly annuity payments under the contract.
Who must use the Simplified Method. You must use
the Simplified Method if your annuity starting date is after
November 18, 1996, and you meet both of the following
conditions.
1. You receive your pension or annuity payments from
any of the following plans.
a. A qualified employee plan.
b. A qualified employee annuity.
c. A tax-sheltered annuity plan (403(b) plan).
2. On your annuity starting date, at least one of the following conditions applies to you.
a. You are under age 75.
b. You are entitled to less than 5 years of guaranteed
payments.
Publication 575 (2016)

Guaranteed payments. Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of
your investment) is payable even if you and any survivor
annuitant don't live to receive the minimum. If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5
years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of
guaranteed payments.
Annuity starting before November 19, 1996. If your
annuity starting date is after July 1, 1986, and before November 19, 1996, and you chose to use the Simplified
Method, you must continue to use it each year that you recover part of your cost. You could have chosen to use the
Simplified Method if your annuity is payable for your life
(or the lives of you and your survivor annuitant) and you
met both of the conditions listed earlier under Who must
use the Simplified Method.
Who can't use the Simplified Method. You can't use
the Simplified Method if you receive your pension or annuity from a nonqualified plan or otherwise don't meet the
conditions described in the preceding discussion. See
General Rule, later.
How to use the Simplified Method. Complete Worksheet A in the back of this publication to figure your taxable annuity for 2016. Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year.
To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for
your annuity. How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. For
this purpose, treat an annuity that is payable over the life
of an annuitant as payable for that annuitant's life even if
the annuity has a fixed-period feature or also provides a
temporary annuity payable to the annuitant's child under
age 25.
You don't need to complete line 3 of the work­

TIP sheet or make the computation on line 4 if you re­

ceived annuity payments last year and used last
year's worksheet to figure your taxable annuity. Instead,
enter the amount from line 4 of last year's worksheet on
line 4 of this year's worksheet.
Single­life annuity. If your annuity is payable for your
life alone, use Table 1 at the bottom of the worksheet to
determine the total number of expected monthly payments. Enter on line 3 the number shown for your age on
your annuity starting date. This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996.
Multiple­lives annuity. If your annuity is payable for
the lives of more than one annuitant, use Table 2 at the
bottom of the worksheet to determine the total number of
expected monthly payments. Enter on line 3 the number
shown for the annuitants' combined ages on the annuity
starting date. For an annuity payable to you as the primary
annuitant and to more than one survivor annuitant,
Publication 575 (2016)

combine your age and the age of the youngest survivor
annuitant. For an annuity that has no primary annuitant
and is payable to you and others as survivor annuitants,
combine the ages of the oldest and youngest annuitants.
Don't treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death.
However, if your annuity starting date is before 1998,
don't use Table 2 and don't combine the annuitants' ages.
Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. This
number will differ depending on whether your annuity
starting date is before November 19, 1996, or after November 18, 1996.
Fixed­period annuity. If your annuity doesn't depend
in whole or in part on anyone's life expectancy, the total
number of expected monthly payments to enter on line 3
of the worksheet is the number of monthly annuity payments under the contract.
Line 6. The amount on line 6 should include all
amounts that could have been recovered in prior years. If
you didn't recover an amount in a prior year, you may be
able to amend your returns for the affected years.
Example. Bill Smith, age 65, began receiving retirement benefits in 2016 under a joint and survivor annuity.
Bill's annuity starting date is January 1, 2016. The benefits
are to be paid for the joint lives of Bill and his wife, Kathy,
age 65. Bill had contributed $31,000 to a qualified plan
and had received no distributions before the annuity starting date. Bill is to receive a retirement benefit of $1,200 a
month, and Kathy is to receive a monthly survivor benefit
of $600 upon Bill's death.
Bill must use the Simplified Method to figure his taxable
annuity because his payments are from a qualified plan
and he is under age 75. Because his annuity is payable
over the lives of more than one annuitant, he uses his and
Kathy's combined ages and Table 2 at the bottom of
Worksheet A in completing line 3 of the worksheet. His
completed worksheet is shown later.
Bill's tax-free monthly amount is $100 ($31,000 ÷ 310)
as shown on line 4 of the worksheet. Upon Bill's death, if
Bill hasn't recovered the full $31,000 investment, Kathy
will also exclude $100 from her $600 monthly payment.
The full amount of any annuity payments received after
310 payments are paid must be included in gross income.
If Bill and Kathy die before 310 payments are made, a
miscellaneous itemized deduction will be allowed for the
unrecovered cost on the final income tax return of the last
to die. This deduction isn’t subject to the 2%-of-adjusted-gross-income limit.
Multiple annuitants. If you and one or more other annuitants receive payments at the same time, you exclude
from each annuity payment a pro rata share of the
monthly tax-free amount. Figure your share by taking the
following steps.
1. Complete your worksheet through line 4 to figure the
monthly tax-free amount.
Page 13

Worksheet A. Simplified Method Worksheet for Bill Smith

Keep for Your Records

1. Enter the total pension or annuity payments received this year. Also, add this amount to the total
for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a . . . . . . . . . . . . . . . . . . .
2. Enter your cost in the plan (contract) at the annuity starting date plus any death benefit
exclusion.* See Cost (Investment in the Contract), earlier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note. If your annuity starting date was before this year and you completed this worksheet last
year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if
the amount of your pension or annuity has changed). Otherwise, go to line 3.
3. Enter the appropriate number from Table 1 below. But if your annuity starting date was after
1997 and the payments are for your life and that of your beneficiary, enter the appropriate
number from Table 2 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Divide line 2 by the number on line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Multiply line 4 by the number of months for which this year's payments were made. If your
annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10,
and 11. Otherwise, go to line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. Enter any amount previously recovered tax free in years after 1986. This is the amount shown
on line 10 of your worksheet for last year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Subtract line 6 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Enter the smaller of line 5 or line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9. Taxable amount for year. Subtract line 8 from line 1. Enter the result, but not less than zero.
Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form
1040NR, line 17b. Note: If your Form 1099-R shows a larger taxable amount, use the amount
figured on this line instead. If you are a retired public safety officer, see Insurance Premiums for
Retired Public Safety Officers, earlier, before entering an amount on your tax return . . . . . . . . . .
10. Was your annuity starting date before 1987?
Yes. STOP. Don't complete the rest of this worksheet.
No. Add lines 6 and 8. This is the amount you have recovered tax free through 2016. You will
need this number if you need to fill out this worksheet next year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11. Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you won't have to
complete this worksheet next year. The payments you receive next year will generally be fully
taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.

$ 14,400

2.

31,000

3.

310

4.

100

5.

1,200

6.

-0-

7.

31,000

8.

1,200

9.

$ 13,200

10.

1,200

11.

$ 29,800

* A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996.

IF the age at annuity
starting date was...
55 or under
56-60
61-65
66-70
71 or older

Table 1 for Line 3 Above
AND your annuity starting date was—
BEFORE November 19,
AFTER November 18,
1996, enter on line 3...
1996, enter on line 3...
300
360
260
310
240
260
170
210
120
160

Table 2 for Line 3 Above
IF the combined ages at
annuity starting date were...
110 or under
111-120
121-130
131-140
141 or older

Page 14

THEN enter
on line 3...
410
360
310
260
210

Publication 575 (2016)

2. Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants.
3. Multiply the amount on line 4 of your worksheet by the
amount figured in (2) above. The result is your share
of the monthly tax-free amount.
Replace the amount on line 4 of the worksheet with the
result in (3) above. Enter that amount on line 4 of your
worksheet each year.

General Rule
Under the General Rule, you determine the tax-free part of
each annuity payment based on the ratio of the cost of the
contract to the total expected return. Expected return is
the total amount you and other eligible annuitants can expect to receive under the contract. To figure it, you must
use life expectancy (actuarial) tables prescribed by the
IRS.
Who must use the General Rule. You must use the
General Rule if you receive pension or annuity payments
from:
A nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan), or
A qualified plan if you are age 75 or older on your annuity starting date and your annuity payments are
guaranteed for at least 5 years.
Annuity starting before November 19, 1996. If your
annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. You also had to use it
for any fixed-period annuity. If you didn't have to use the
General Rule, you could have chosen to use it. If your annuity starting date is before July 2, 1986, you had to use
the General Rule unless you could use the Three-Year
Rule.
If you had to use the General Rule (or chose to use it),
you must continue to use it each year that you recover
your cost.
Who can't use the General Rule. You can't use the
General Rule if you receive your pension or annuity from a
qualified plan and none of the circumstances described in
the preceding discussions apply to you. See Simplified
Method, earlier.
More information. For complete information on using
the General Rule, including the actuarial tables you need,
see Pub. 939.

Taxation of
Nonperiodic Payments
This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity
plan are taxed. Nonperiodic distributions are also known
Publication 575 (2016)

as amounts not received as an annuity. They include all
payments other than periodic payments and corrective
distributions.
For example, the following items are treated as nonperiodic distributions.
Cash withdrawals.
Distributions of current earnings (dividends) on your
investment. However, don't include these distributions
in your income to the extent the insurer keeps them to
pay premiums or other consideration for the contract.
Certain loans. See Loans Treated as Distributions,
later.
The value of annuity contracts transferred without full
and adequate consideration. See Transfers of Annuity
Contracts, later.
Corrective distributions of excess plan contributions. Generally, if the contributions made for you during
the year to certain retirement plans exceed certain limits,
the excess is taxable to you. To correct an excess, your
plan may distribute it to you (along with any income
earned on the excess). Although the plan reports the corrective distributions on Form 1099-R, the distribution isn't
treated as a nonperiodic distribution from the plan. It isn't
subject to the allocation rules explained in the following
discussion, it can't be rolled over into another plan, and it
isn't subject to the additional tax on early distributions.
If your retirement plan made a corrective distribu­

TIP tion of excess amounts (excess deferrals, excess

contributions, or excess annual additions), your
Form 1099­R should have the code “8,” “B,” “P,” or “E” in
box 7.
For information on plan contribution limits and how to
report corrective distributions of excess contributions, see
Retirement Plan Contributions under Employee Compen­
sation in Pub. 525.

Figuring the Taxable Amount
How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity
starting date, or on or after the annuity starting date. If it is
made before the annuity starting date, its tax treatment
also depends on whether it is made under a qualified or
nonqualified plan. If it is made under a nonqualified plan,
its tax treatment depends on whether it fully discharges
the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you
made before August 14, 1982.
You may be able to roll over the taxable amount

TIP of a nonperiodic distribution from a qualified re­

tirement plan into another qualified retirement
plan or a traditional IRA tax free. See Rollovers, later. If
you don't make a tax­free rollover and the distribution
qualifies as a lump­sum distribution, you may be able to
elect an optional method of figuring the tax on the taxable
amount. See Lump-Sum Distributions, later.
Page 15

Annuity starting date. The annuity starting date is either
the first day of the first period for which you receive an annuity payment under the contract or the date on which the
obligation under the contract becomes fixed, whichever is
later.
Distributions of employer securities. If you receive a
distribution of employer securities from a qualified retirement plan, you may be able to defer the tax on the net unrealized appreciation (NUA) in the securities. The NUA is
the net increase in the securities' value while they were in
the trust. This tax deferral applies to distributions of the
employer corporation's stocks, bonds, registered debentures, and debentures with interest coupons attached.
If the distribution is a lump-sum distribution, tax is deferred on all of the NUA unless you choose to include it in
your income for the year of the distribution.
A lump-sum distribution for this purpose is the distribution or payment of a plan participant's entire balance
(within a single tax year) from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock bonus plans), but only if paid:
Because of the plan participant's death,
After the participant reaches age 591 2,
Because the participant, if an employee, separates
from service, or
After the participant, if a self-employed individual, becomes totally and permanently disabled.
If you choose to include NUA in your income for

TIP the year of the distribution and the participant was

born before January 2, 1936, you may be able to
figure the tax on the NUA using the optional methods de­
scribed under Lump-Sum Distributions, later.
If the distribution isn't a lump-sum distribution, tax is deferred only on the NUA resulting from employee contributions other than deductible voluntary employee contributions.
The NUA on which tax is deferred should be shown in
box 6 of the Form 1099-R you receive from the payer of
the distribution.
When you sell or exchange employer securities with
tax-deferred NUA, any gain is long-term capital gain up to
the amount of the NUA that isn’t included in your basis in
the employer securities. Any gain that is more than the
NUA is long-term or short-term gain, depending on how
long you held the securities after the distribution.
Your basis in the employer securities is the total of the
following amounts.
Your contributions to the plan that are attributable to
the securities.
Your employer's contributions that were taxed as ordinary income in the year the securities were distributed.
Your NUA in the securities that is attributable to employer contributions and taxed as ordinary income in
the year the securities were distributed.

Page 16

How to report. Enter the total amount of a nonperiodic
distribution on Form 1040, line 16a; Form 1040A, line 12a;
or Form 1040NR, line 17a. Enter the taxable amount of
the distribution on Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR, line 17b. However, if you make
a tax-free rollover or elect an optional method of figuring
the tax on a lump-sum distribution, see How to report in
the discussions of those tax treatments, later.

Distribution On or After
Annuity Starting Date
If you receive a nonperiodic payment from your annuity
contract on or after the annuity starting date, you generally
must include all of the payment in gross income. For example, a cost-of-living increase in your pension after the
annuity starting date is an amount not received as an annuity and, as such, is fully taxable.
Reduction in subsequent payments. If the annuity
payments you receive are reduced because you received
a nonperiodic distribution, you can exclude part of the
nonperiodic distribution from gross income. The part you
can exclude is equal to your cost in the contract reduced
by any tax-free amounts you previously received under
the contract, multiplied by a fraction. The numerator is the
reduction in each annuity payment because of the nonperiodic distribution. The denominator is the full unreduced amount of each annuity payment originally provided for.
Single-sum in connection with the start of annuity
payments. If you receive a single-sum payment on or after your annuity starting date in connection with the start of
annuity payments for which you must use the Simplified
Method, treat the single-sum payment as if it were received before your annuity starting date. (See Simplified
Method under Taxation of Periodic Payments, earlier, for
information on its required use.) Follow the rules discussed under Distribution Before Annuity Starting Date
From a Qualified Plan, later.
Distribution in full discharge of contract. You may receive an amount on or after the annuity starting date that
fully satisfies the payer's obligation under the contract.
The amount may be a refund of what you paid for the contract or for the complete surrender, redemption, or maturity of the contract. Include the amount in gross income
only to the extent that it exceeds the remaining cost of the
contract.

Distribution Before Annuity Starting Date
From a Qualified Plan
If you receive a nonperiodic distribution before the annuity
starting date from a qualified retirement plan, you generally can allocate only part of it to the cost of the contract.
You exclude from your gross income the part that you allocate to the cost. You include the remainder in your gross
income.

Publication 575 (2016)

For this purpose, a qualified retirement plan is:
A qualified employee plan (or annuity contract purchased by such a plan),
A qualified employee annuity plan, or
A tax-sheltered annuity plan (403(b) plan).
Use the following formula to figure the tax-free amount
of the distribution.

Amount
received

Cost of contract

x

Account balance

Tax-free
amount

=

For this purpose, your account balance includes only
amounts to which you have a nonforfeitable right (a right
that can't be taken away).
Example. Ann Brown received a $50,000 distribution
from her retirement plan before her annuity starting date.
She had $10,000 invested (cost) in the plan. Her account
balance was $100,000. She can exclude $5,000 of the
$50,000 distribution, figured as follows:

$50,000

x

$10,000
$100,000

=

$5,000

Defined contribution plan. A defined contribution plan
is a plan in which you have an individual account. Your
benefits are based only on the amount contributed to the
account and the income, gains or losses, etc., which may
be allocated to that account. Under a defined contribution
plan, your contributions (and income allocable to those
contributions) may be treated as a separate contract for
figuring the taxable part of any distribution. The employer
contributions (and income allocable to those contributions) wouldn't be considered part of that separate contract.
Example. Ryan participates in a defined contribution
plan that treats employee contributions and earnings allocable to them as a separate contract. He received a
non-annuity distribution of $5,000 before his annuity starting date. He had made after-tax contributions of $10,000.
The earnings allocable to his contributions were $2,500.
His employer also contributed $10,000. The earnings allocable to the employer contributions were $2,500.
To determine the tax-free amount of Ryan's distribution, use the same formula shown above. However, because employee contributions are treated as a separate
contract, the account balance would be the total of Ryan's
contributions and allocable earnings.
Thus the tax-free amount would be $5,000 × ($10,000
÷ $12,500) = $4,000. The taxable amount would be
$1,000 ($5,000 − $4,000).
If the employee contributions weren't treated as a separate contract, the tax-free amount would be $2,000
($5,000 × ($10,000 ÷ $25,000)) and the taxable amount
would be $3,000 ($5,000 − $2,000).
Publication 575 (2016)

Plans that permitted withdrawal of employee contributions. If you contributed before 1987 to a pension plan
that, as of May 5, 1986, permitted you to withdraw your
contributions before your separation from service, any distribution before your annuity starting date is tax free to the
extent that it, when added to earlier distributions received
after 1986, doesn't exceed your cost as of December 31,
1986. Apply the allocation described in the preceding discussion only to any excess distribution.

Distribution Before Annuity Starting Date
From a Nonqualified Plan
If you receive a nonperiodic distribution before the annuity
starting date from a plan other than a qualified retirement
plan (nonqualified plan), it is allocated first to earnings (the
taxable part) and then to the cost of the contract (the
tax-free part). This allocation rule applies, for example, to
a commercial annuity contract you bought directly from
the issuer. You include in your gross income the smaller
of:
The nonperiodic distribution, or
The amount by which the cash value of the contract
(figured without considering any surrender charge) immediately before you receive the distribution exceeds
your investment in the contract at that time.
Example. You bought an annuity from an insurance
company. Before the annuity starting date under your annuity contract, you received a $7,000 distribution. At the
time of the distribution, the annuity had a cash value of
$16,000 and your investment in the contract was $10,000.
The distribution is allocated first to earnings, so you must
include $6,000 ($16,000 − $10,000) in your gross income.
The remaining $1,000 ($7,000 − $6,000) is a tax-free return of part of your investment.
Exception to allocation rule. Certain nonperiodic distributions received before the annuity starting date aren't
subject to the allocation rule in the preceding discussion.
Instead, you include the amount of the payment in gross
income only to the extent that it exceeds the cost of the
contract.
This exception applies to the following distributions.
Distributions in full discharge of a contract that you receive as a refund of what you paid for the contract or
for the complete surrender, redemption, or maturity of
the contract.
Distributions from life insurance or endowment contracts (other than modified endowment contracts, as
defined in section 7702A of the Internal Revenue
Code) that aren't received as an annuity under the
contracts.
Distributions under contracts entered into before August 14, 1982, to the extent that they are allocable to
your investment before August 14, 1982.
If you bought an annuity contract before August 14,
1982, and made investments both before and after August
Page 17

14, 1982, the distributed amounts are allocated to your
investment or to earnings in the following order.
1. The part of your investment that was made before August 14, 1982. This part of the distribution is tax free.
2. The earnings on the part of your investment that was
made before August 14, 1982. This part of the distribution is taxable.
3. The earnings on the part of your investment that was
made after August 13, 1982. This part of the distribution is taxable.
4. The part of your investment that was made after August 13, 1982. This part of the distribution is tax free.

!

CAUTION

The taxable portion of distributions from nonquali­
fied plans are subject to the net investment in­
come tax. See the Instructions for Form 8960.

Distribution of U.S. savings bonds. If you receive U.S.
savings bonds in a taxable distribution from a retirement
or profit-sharing plan, report the value of the bonds at the
time of distribution as income. The value of the bonds includes accrued interest. When you cash the bonds, your
Form 1099-INT will show the total interest accrued, including the part you reported when the bonds were distributed
to you. For information on how to adjust your interest income for U.S. savings bond interest you previously reported, see How To Report Interest Income in chapter 1 of
Pub. 550, Investment Income and Expenses.

Loans Treated as Distributions
If you borrow money from your retirement plan, you must
treat the loan as a nonperiodic distribution from the plan
unless it qualifies for the exception to this loan-as-distribution rule explained later. This treatment also applies to any
loan under a contract purchased under your retirement
plan, and to the value of any part of your interest in the
plan or contract that you pledge or assign (or agree to
pledge or assign). It applies to loans from both qualified
and nonqualified plans, including commercial annuity contracts you purchase directly from the issuer. Further, it applies if you renegotiate, extend, renew, or revise a loan
that qualified for the exception below if the altered loan
doesn't qualify. In that situation, you must treat the outstanding balance of the loan as a distribution on the date
of the transaction.
You determine how much of the loan is taxable using
the allocation rules for nonperiodic distributions discussed
under Figuring the Taxable Amount, earlier. The taxable
part may be subject to the additional tax on early distributions. It isn't an eligible rollover distribution and doesn't
qualify for the 10-year tax option.
Exception for qualified plan, 403(b) plan, and government plan loans. At least part of certain loans under
a qualified employee plan, qualified employee annuity,
tax-sheltered annuity (403(b) plan), or government plan
isn't treated as a distribution from the plan. This exception
Page 18

to the loan-as-distribution rule applies only to a loan that
either:
Is used to acquire your main home, or
Must be repaid within 5 years.
If a loan qualifies for this exception, you must treat it as
a nonperiodic distribution only to the extent that the loan,
when added to the outstanding balances of all your loans
from all plans of your employer (and certain related employers, defined later) exceeds the lesser of:
$50,000, or
Half the present value (but not less than $10,000) of
your nonforfeitable accrued benefit under the plan,
determined without regard to any accumulated deductible employee contributions.
You must reduce the $50,000 amount if you already
had an outstanding loan from the plan during the 1-year
period ending the day before you took out the loan. The
amount of the reduction is your highest outstanding loan
balance during that period minus the outstanding balance
on the date you took out the new loan. If this amount is
zero or less, ignore it.
Substantially level payments. To qualify for the exception to the loan-as-distribution rule, the loan must require substantially level payments at least quarterly over
the life of the loan. If the loan is from a designated Roth
account, the payments must be satisfied separately for
that part of the loan and for the part of the loan from other
accounts under the plan. This level payment requirement
doesn't apply to the period in which you are on a leave of
absence without pay or with a rate of pay that is less than
the required installment. Generally, this leave of absence
must not be longer than 1 year. You must repay the loan
within 5 years from the date of the loan (unless the loan
was used to acquire your main home). Your installment
payments after the leave ends must not be less than your
original payments.
However, if your plan suspends your loan payments for
any part of the period during which you are in the uniformed services, you won't be treated as having received
a distribution even if the suspension is for more than 1
year and the term of the loan is extended. The loan payments must resume upon completion of such period and
the loan must be repaid in substantially level installments
within 5 years from the date of the loan (unless the loan
was used to acquire your main home) plus the period of
suspension.
Example 1. On May 1, 2016, you borrowed $40,000
from your retirement plan. The loan was to be repaid in
level monthly installments over 5 years. The loan wasn't
used to acquire your main home. You make nine monthly
payments and start an unpaid leave of absence that lasts
for 12 months. You weren't in a uniformed service during
this period. After the leave period ends and you resume
active employment, you resume making repayments on
the loan. You must repay this loan by April 30, 2021 (5
years from the date of this loan). You can increase your
monthly installments or you can make the original monthly
installments and on April 30, 2021, pay the balance.
Publication 575 (2016)

Example 2. The facts are the same as in Example 1,
except that you are on a leave of absence performing
service in the uniformed services for 2 years. The loan
payments were suspended for that period. You must resume making loan payments at the end of that period and
the loan must be repaid by April 30, 2023 (5 years from
the date of the loan plus the period of suspension, which
is 2 years in this example).
Related employers and related plans. In determining loan balances for purposes of applying the exception
to the loan-as-distribution rule, you must add the balances
of all your loans from all plans of your employer and from
all plans of your employers who are treated as a single
employer. Treat separate employers' plans as plans of a
single employer if they are treated that way under other
qualified retirement plan rules because the employers are
related.
Employers are related if they are:
Members of a controlled group of corporations,
Businesses under common control, or
Members of an affiliated service group.
An affiliated service group generally is two or more
service organizations whose relationship involves an ownership connection. Their relationship also includes the
regular or significant performance of services by one organization for or in association with another.
Denial of interest deduction. If the loan from a qualified plan isn't treated as a distribution because the exception applies, you can't deduct any of the interest on the
loan during any period that:
The loan is secured by amounts from elective deferrals under a qualified cash or deferred arrangement
(section 401(k) plan) or a salary reduction agreement
to purchase a tax-sheltered annuity, or
You are a key employee as defined in section 416(i) of
the Internal Revenue Code.
Reporting by plan. If your loan is treated as a distribution, you should receive a Form 1099-R showing code “L”
in box 7.
Effect on investment in the contract. If your loan is
treated as a distribution, you must reduce your investment
in the contract to the extent that the distribution is tax free
under the allocation rules for qualified plans explained
earlier. Repayments of the loan increase your investment
in the contract to the extent that the distribution is taxable
under those rules.
If you receive a loan under a nonqualified plan other
than a 403(b) plan, including a commercial annuity contract that you purchase directly from the issuer, you increase your investment in the contract to the extent that
the distribution is taxable under the general allocation rule
for nonqualified plans explained earlier. Repayments of
the loan don't affect your investment in the contract. However, if the distribution is excepted from the general allocation rule (for example, because it is made under a contract entered into before August 14, 1982), you reduce
Publication 575 (2016)

your investment in the contract to the extent that the distribution is tax free and increase it for loan repayments to
the extent that the distribution is taxable.

Transfers of Annuity Contracts
If you transfer without full and adequate consideration an
annuity contract issued after April 22, 1987, you are
treated as receiving a nonperiodic distribution. The distribution equals the excess of:
The cash surrender value of the contract at the time of
transfer, over
Your investment in the contract at that time.
This rule doesn't apply to transfers between spouses or
transfers between former spouses incident to a divorce.
Tax-free exchange. No gain or loss is recognized on an
exchange of an annuity contract for another annuity contract if the insured or annuitant remains the same. However, if an annuity contract is exchanged for a life insurance or endowment contract, any gain due to interest
accumulated on the contract is ordinary income.
If you transfer a full or partial interest in a tax-sheltered
annuity that isn't subject to restrictions on early distributions to another tax-sheltered annuity, the transfer qualifies for nonrecognition of gain or loss.
If you exchange an annuity contract issued by a life insurance company that is subject to a rehabilitation, conservatorship, or similar state proceeding for an annuity
contract issued by another life insurance company, the
exchange qualifies for nonrecognition of gain or loss. The
exchange is tax free even if the new contract is funded by
two or more payments from the old annuity contract. This
also applies to an exchange of a life insurance contract for
a life insurance, endowment, annuity, or qualified
long-term care insurance contract.
If you transfer part of the cash surrender value of an existing annuity contract for a new annuity contract issued
by another insurance company, the transfer qualifies for
nonrecognition of gain or loss. The funds must be transferred directly between the insurance companies. Your investment in the original contract immediately before the
exchange is allocated between the contracts based on the
percentage of the cash surrender value allocated to each
contract.
Example. You own an annuity contract issued by ABC
Insurance. You assign 60% of the cash surrender value of
that contract to DEF Insurance to purchase an annuity
contract. The funds are transferred directly between the
insurance companies. You don't recognize any gain or
loss on the transaction. After the exchange, your investment in the new contract is equal to 60% of your investment in the old contract immediately before the exchange.
Your investment in the old contract is equal to 40% of your
original investment in that contract.
Tax­free transfers for certain cash distributions. If
you receive cash from the surrender of one contract and
invest the cash in another contract, you generally don't
Page 19

have a tax-free transfer. However, you can elect to receive tax-free treatment for a cash distribution from an insurance company that is subject to a rehabilitation, conservatorship, insolvency, or similar state proceeding if all
of the following conditions are met.
You withdraw all the cash to which you are entitled.
You reinvest the proceeds within 60 days in a single
contract issued by another insurance company.
You assign all rights to any future distributions to the
new issuer if the cash distribution is restricted by the
state proceeding to an amount that is less than required for full settlement.
An exchange of these contracts would otherwise qualify as a tax-free transfer.
You must give the new issuer a statement containing
the following information.
The amount of cash distributed under the old contract.
The amount of cash reinvested in the new contract.
Your investment in the old contract on the date of the
initial distribution.
You must also attach the following items to your timely
filed income tax return for the year of the initial distribution.
A copy of the statement you gave to the new issuer.
A statement that contains the words “ELECTION UNDER REV. PROC. 92-44,” the new issuer's name, and
the policy number or similar identifying information for
the new contract.
Tax-free exchange reported on Form 1099-R. If you
make a tax-free exchange of an annuity contract for another annuity contract issued by a different company, the
exchange will be shown on Form 1099-R with a code “6”
in box 7. You need not report this on your tax return.
Date of purchase of contract received in a tax-free
exchange. If you acquire an annuity contract in a tax-free
exchange for another annuity contract, its date of purchase is the date you purchased the annuity you exchanged. This rule applies for determining if the annuity
qualifies for exemption from the tax on early distributions
as an immediate annuity. See Tax on Early Distributions,
later.

Lump-Sum Distributions
This section on lump­sum distributions only ap­
TIP plies if the plan participant was born before Janu­
ary 2, 1936. If the plan participant was born after
January 1, 1936, the taxable amount of this nonperiodic
payment is reported as discussed earlier.
A lump-sum distribution is the distribution or payment in 1
tax year of a plan participant's entire balance from all of
the employer's qualified plans of one kind (for example,
pension, profit-sharing, or stock bonus plans). Additionally, a lump-sum distribution is a distribution that was paid:
Because of the plan participant's death,
Page 20

After the participant reaches age 591 2,
Because the participant, if an employee, separates
from service, or
After the participant, if a self-employed individual, becomes totally and permanently disabled.
A distribution from a nonqualified plan (such as a privately
purchased commercial annuity or a section 457 deferred
compensation plan of a state or local government or
tax-exempt organization) can't qualify as a lump-sum distribution.
The participant's entire balance from a plan doesn't include certain forfeited amounts. It also doesn't include any
deductible voluntary employee contributions allowed by
the plan after 1981 and before 1987.
If you receive a lump-sum distribution from a qualified
employee plan or qualified employee annuity and the plan
participant was born before January 2, 1936, you may be
able to elect optional methods of figuring the tax on the
distribution. The part from active participation in the plan
before 1974 may qualify as capital gain subject to a 20%
tax rate. The part from participation after 1973 (and any
part from participation before 1974 that you don't report as
capital gain) is ordinary income. You may be able to use
the 10-year tax option, discussed later, to figure tax on the
ordinary income part.
Each individual, estate, or trust who receives part of a
lump-sum distribution on behalf of a plan participant who
was born before January 2, 1936, can choose whether to
elect the optional methods for the part each received.
However, if two or more trusts receive the distribution, the
plan participant or the personal representative of a deceased participant must make the choice.
Use Form 4972 to figure the separate tax on a
lump-sum distribution using the optional methods. The tax
figured on Form 4972 is added to the regular tax figured
on your other income. This may result in a smaller tax than
you would pay by including the taxable amount of the distribution as ordinary income in figuring your regular tax.
Alternate payee under qualified domestic relations
order. If you receive a distribution as an alternate payee
under a qualified domestic relations order (discussed earlier under General Information), you may be able to
choose the optional tax computations for it. You can make
this choice for a distribution that would be treated as a
lump-sum distribution had it been received by your
spouse or former spouse (the plan participant). However,
for this purpose, the balance to your credit doesn't include
any amount payable to the plan participant.
If you choose an optional tax computation for a distribution received as an alternate payee, this choice won't affect any election for distributions from your own plan.
More than one recipient. One or all of the recipients of
a lump-sum distribution can use the optional tax computations. See Multiple recipients of a lump­sum distribution in
the Instructions for Form 4972.
Reemployment. A separated employee's vested percentage in his or her retirement benefit may increase if he
Publication 575 (2016)

or she is rehired by the employer within 5 years following
separation from service. This possibility doesn't prevent a
distribution made before reemployment from qualifying as
a lump-sum distribution. However, if the employee elected
an optional method of figuring the tax on the distribution
and his or her vested percentage in the previous retirement benefit increases after reemployment, the employee
must recapture the tax saved. This is done by increasing
the tax for the year in which the increase in vesting first
occurs.

How to treat the distribution. If you receive a lump-sum
distribution, you may have the following options for how to
treat the taxable part.

Distributions that don't qualify. The following distributions don't qualify as lump-sum distributions for the capital
gain treatment or 10-year tax option.

Report the part of the distribution from participation
before 1974 as a capital gain (if you qualify) and use
the 10-year tax option to figure the tax on the part from
participation after 1973 (if you qualify).

The part of a distribution not rolled over if the distribution is partially rolled over to another qualified plan or
an IRA.
Any distribution if an earlier election to use either the
5- or 10-year tax option had been made after 1986 for
the same plan participant.
U.S. Retirement Plan Bonds distributed with a lump
sum.
Any distribution made during the first 5 tax years that
the participant was in the plan, unless it was made because the participant died.
The current actuarial value of any annuity contract included in the lump sum. (Form 1099-R, box 8, should
show this amount, which you use only to figure tax on
the ordinary income part of the distribution.)
Any distribution to a 5% owner that is subject to penalties under section 72(m)(5)(A) of the Internal Revenue
Code.
A distribution from an IRA.
A distribution from a tax-sheltered annuity (section
403(b) plan).
A distribution of the redemption proceeds of bonds
rolled over tax free to a qualified pension plan, etc.,
from a qualified bond purchase plan.
A distribution from a qualified plan if the participant or
his or her surviving spouse previously received an eligible rollover distribution from the same plan (or another plan of the employer that must be combined with
that plan for the lump-sum distribution rules) and the
previous distribution was rolled over tax free to another qualified plan or an IRA.
A distribution from a qualified plan that received a rollover after 2001 from an IRA (other than a conduit
IRA), a governmental section 457 plan, or a section
403(b) tax-sheltered annuity on behalf of the plan participant.
A distribution from a qualified plan that received a rollover after 2001 from another qualified plan on behalf
of that plan participant's surviving spouse.
A corrective distribution of excess deferrals, excess
contributions, excess aggregate contributions, or excess annual additions.
Publication 575 (2016)

A lump-sum credit or payment from the Federal Civil
Service Retirement System (or the Federal Employees' Retirement System).

Report the part of the distribution from participation
before 1974 as a capital gain (if you qualify) and the
part from participation after 1973 as ordinary income.

Use the 10-year tax option to figure the tax on the total
taxable amount (if you qualify).
Roll over all or part of the distribution. See Rollovers,
later. No tax is currently due on the part rolled over.
Report any part not rolled over as ordinary income.
Report the entire taxable part of the distribution as ordinary income on your tax return.
The first three options are explained in the following
discussions.
Electing optional lump-sum treatment. You can
choose to use the 10-year tax option or capital gain treatment only once after 1986 for any plan participant. If you
make this choice, you can't use either of these optional
treatments for any future distributions for the participant.
Complete Form 4972 and attach it to your Form 1040 if
you choose to use one or both of the tax options. If you received more than one lump-sum distribution for a plan
participant during the year, you must add them together in
your computation. If you and your spouse are filing a joint
return and you both have received a lump-sum distribution, each of you should complete a separate Form 4972.
Time for choosing. You must decide to use the tax
options before the end of the time, including extensions,
for making a claim for credit or refund of tax. This is usually 3 years after the date the return was filed or 2 years
after the date the tax was paid, whichever is later. (Returns filed before their due date are considered filed on
their due date.)
Changing your mind. You can change your mind and
decide not to use the tax options within the time period
just discussed. If you change your mind, file Form 1040X,
Amended U.S. Individual Income Tax Return, with a statement saying you don't want to use the optional lump-sum
treatment. Generally, you must pay any additional tax due
to the change with the Form 1040X.
How to report. If you elect capital gain treatment (but
not the 10-year tax option) for a lump-sum distribution, include the ordinary income part of the distribution on Form
1040, lines 16a and 16b, or on Form 1040NR, lines 17a
and 17b. Enter the capital gain part of the distribution in
Part II of Form 4972. Include the tax from Form 4972,
line 7 in the total on Form 1040, line 44, or on Form
1040NR, line 42.
Page 21

If you elect the 10-year tax option, don't include any
part of the distribution on Form 1040, lines 16a or 16b, or
on Form 1040NR, lines 17a or 17b. Report the entire distribution in Part III of Form 4972 or, if you also elect capital
gain treatment, report the capital gain part in Part II and
the ordinary income part in Part III. Include the tax from
Form 4972, line 30 in the total on Form 1040, line 44, or
on Form 1040NR, line 42.
Taxable and tax-free parts of the distribution. The
taxable part of a lump-sum distribution is the employer's
contributions and income earned on your account. You
may recover your cost in the lump sum and any net unrealized appreciation (NUA) in employer securities tax free.
Cost. In general, your cost is the total of:
The plan participant's nondeductible contributions to
the plan,
The plan participant's taxable costs of any life insurance contract distributed,
Any employer contributions that were taxable to the
plan participant, and
Repayments of any loans that were taxable to the plan
participant.
You must reduce this cost by amounts previously distributed tax free.
Net unrealized appreciation (NUA). The NUA in employer securities (box 6 of Form 1099-R) received as part
of a lump-sum distribution is generally tax free until you
sell or exchange the securities. (See Distributions of em­
ployer securities under Figuring the Taxable Amount, earlier.) However, if you choose to include the NUA in your income for the year of the distribution and there is an
amount in box 3 of Form 1099-R, part of the NUA will
qualify for capital gain treatment. Use the NUA Worksheet
in the instructions for Form 4972 to find the part that qualifies.
Losses. You may be able to claim a loss on your return if
you receive a lump-sum distribution that is less than the
plan participant's cost. You must receive the distribution
entirely in cash or worthless securities. The amount you
can claim is the difference between the participant's cost
and the amount of the cash distribution, if any.
To claim the loss, you must itemize deductions on
Schedule A (Form 1040). Show the loss as a miscellaneous deduction subject to the 2%-of-adjusted-gross-income limit.
You can't claim a loss if you receive securities that
aren't worthless, even if the total value of the distribution is
less than the plan participant's cost. You recognize gain or
loss only when you sell or exchange the securities.
A loss under a nonqualified plan, such as a com­

TIP mercial variable annuity, is deductible in the same
manner as a lump­sum distribution.

Page 22

Capital Gain Treatment
Capital gain treatment applies only to the taxable part of a
lump-sum distribution resulting from participation in the
plan before 1974. The amount treated as capital gain is
taxed at a 20% rate. You can elect this treatment only
once for any plan participant, and only if the plan participant was born before January 2, 1936.
Complete Part II of Form 4972 to choose the 20% capital gain election.
Figuring the capital gain and ordinary income parts.
Generally, figure the capital gain and ordinary income
parts of a lump-sum distribution by using the following formulas.
Capital Gain:
Months of active participation before 1974
Total Taxable
×
Amount
Total months of active participation
Ordinary Income:
Total Taxable
×
Amount

Months of active participation after 1973
Total months of active participation

In figuring the months of active participation before
1974, count as 12 months any part of a calendar year in
which the plan participant actively participated under the
plan. For active participation after 1973, count as 1 month
any part of a calendar month in which the participant actively participated in the plan.
The capital gain part should be shown in box 3 of Form
1099-R or other statement given to you by the payer of the
distribution.
Reduction for federal estate tax. If any federal estate tax (discussed under Survivors and Beneficiaries,
later) was paid on the lump-sum distribution, you must decrease the capital gain by the amount of estate tax applicable to it. Follow the Form 4972 instructions for Part II,
line 6, to figure the part of the estate tax applicable to the
capital gain that is used to reduce the capital gain. If you
don't make the capital gain election, enter on line 18 of
Part III the estate tax attributable to the total lump-sum distribution. For information on how to figure the estate tax
attributable to the lump-sum distribution, get the Instructions for Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, or contact the administrator of the decedent's estate.

10-Year Tax Option
The 10-year tax option is a special formula used to figure
a separate tax on the ordinary income part of a lump-sum
distribution. You pay the tax only once, for the year in
which you receive the distribution, not over the next 10
years. You can elect this treatment only once for any plan
participant, and only if the plan participant was born before January 2, 1936.

Publication 575 (2016)

The ordinary income part of the distribution is the
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.
You can also treat the capital gain part of the distribution
(box 3 of Form 1099-R) as ordinary income for the 10-year
tax option if you don't choose capital gain treatment for
that part.
Complete Part III of Form 4972 to choose the 10-year
tax option. You must use the special Tax Rate Schedule
shown in the instructions for Part III to figure the tax.

Examples
The following examples show how to figure the separate
tax on Form 4972.
Example 1. Robert C. Smith, who was born in 1935,
retired from Crabtree Corporation in 2016. He withdrew
the entire amount to his credit from the company's qualified pension plan. In December 2016, he received a total

distribution of $175,000 (the $25,000 tax-free part of the
distribution consisting of employee contributions plus the
$150,000 taxable part of the distribution consisting of employer contributions and earnings on all contributions).
The payer gave Robert a Form 1099-R, which shows
the capital gain part of the taxable distribution (the part attributable to participation before 1974) to be $10,000.
Robert elects 20% capital gain treatment for this part. Filled-in copies of Robert's Form 1099-R and Form
4972 follow. He enters $10,000 on Form 4972, Part II,
line 6 and $2,000 ($10,000 × 20%) on Part II, line 7.
The ordinary income part of the taxable distribution is
$140,000 ($150,000 – $10,000). Robert elects to figure
the tax on this part using the 10-year tax option. He enters
$140,000 on Form 4972, Part III, line 8. Then he completes the rest of Form 4972 and includes the tax of
$24,270 in the total on line 44 of his Form 1040.

CORRECTED (if checked)
PAYER’S name, street address, city or town, state or province,
country, and ZIP or foreign postal code

Crabtree Corporation Employees’ Pension Plan
1111 Main Street
Anytown, Texas 75000

OMB No. 1545-0119

1 Gross distribution

$

2016

175000.00

2a Taxable amount

$

150000.00

Form

2b Taxable amount
not determined
PAYER’S federal identification
number

RECIPIENT’S identification
number

10-0000000

002-00-3456

Total
distribution

3 Capital gain (included
in box 2a)

$

10000.00

5 Employee contributions

RECIPIENT’S name

/Designated Roth
contributions or
insurance premiums

Robert C. Smith
$

25000.00

7 Distribution
code(s)

Street address (including apt. no.)

911 Mill Way

IRA/
SEP/
SIMPLE

7A

10 Amount allocable to IRR
within 5 years

distribution

11 1st year of
desig. Roth contrib.

FATCA filing
requirement

$

12 State tax withheld

$
$
Form

1099-R

Publication 575 (2016)

www.irs.gov/form1099r

Report this
income on your
federal tax
return. If this
form shows
federal income
tax withheld in
box 4, attach
this copy to
your return.

4 Federal income tax
withheld

30000.00

$

6 Net unrealized
appreciation in
employer’s securities

$
8 Other

This information is
being furnished to
the Internal
Revenue Service.

%

%
9b Total employee contributions

$

13 State/Payer’s state no. 14 State distribution

$
$
15 Local tax withheld

Account number (see instructions)

Copy B

X

$

City or town, state or province, country, and ZIP or foreign postal code 9a Your percentage of total

Anytown, Texas 75000

1099-R

Distributions From
Pensions, Annuities,
Retirement or
Profit-Sharing
Plans, IRAs,
Insurance
Contracts, etc.

$
$
16 Name of locality

17 Local distribution

$
$
Department of the Treasury - Internal Revenue Service

Page 23

Form

4972

Department of the Treasury
Internal Revenue Service (99)

Tax on Lump-Sum Distributions

OMB No. 1545-0193

2016

(From Qualified Plans of Participants Born Before January 2, 1936)
▶

Information about Form 4972 and its instructions is available at www.irs.gov/form4972.
▶ Attach to Form 1040, Form 1040NR, or Form 1041.

Attachment
Sequence No. 28
Identifying number

Name of recipient of distribution

002-03-3456

Robert C. Smith
Complete this part to see if you can use Form 4972
Part I

Yes No

1

Was this a distribution of a plan participant’s entire balance (excluding deductible voluntary employee
contributions and certain forfeited amounts) from all of an employer’s qualified plans of one kind (for
example, pension, profit-sharing, or stock bonus)? If “No,” don't use this form . . . . . . . . . .
2
Did you roll over any part of the distribution? If “Yes,” don't use this form
. . . . . . . . . . .
3
Was this distribution paid to you as a beneficiary of a plan participant who was born before January 2, 1936?
4
Were you (a) a plan participant who received this distribution, (b) born before January 2, 1936, and (c) a
participant in the plan for at least 5 years before the year of the distribution?
. . . . . . . . . .
If you answered “No” to both questions 3 and 4, don't use this form.
5a Did you use Form 4972 after 1986 for a previous distribution from your own plan? If “Yes,” don't use this
form for a 2016 distribution from your own plan . . . . . . . . . . . . . . . . . . . .
b If you are receiving this distribution as a beneficiary of a plan participant who died, did you use Form 4972
for a previous distribution received as a beneficiary of that participant after 1986? If “Yes,” don't use this
form for this distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Complete this part to choose the 20% capital gain election (see instructions)
Part II
6
Capital gain part from Form 1099-R, box 3 . . . . . . . . . . . . . . . . . . .
6
7
Multiply line 6 by 20% (0.20) . . . . . . . . . . . . . . . . . . . . . . ▶
7
If you also choose to use Part III, go to line 8. Otherwise, include the amount from line 7 in the
total on Form 1040, line 44; Form 1040NR, line 42; or Form 1041, Schedule G, line 1b.
Complete this part to choose the 10-year tax option (see instructions)
Part III
8

9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

If you completed Part II, enter the amount from Form 1099-R, box 2a minus box 3. If you didn't
complete Part II, enter the amount from box 2a. Multiple recipients (and recipients who elect to
include net unrealized appreciation (NUA) in taxable income) see instructions . . . . . . .
Death benefit exclusion for a beneficiary of a plan participant who died before August 21, 1996 .
Total taxable amount. Subtract line 9 from line 8 . . . . . . . . . . . . . . . . .
Current actuarial value of annuity from Form 1099-R, box 8. If none, enter -0- . . . . . . .
Adjusted total taxable amount. Add lines 10 and 11. If this amount is $70,000 or more, skip lines
13 through 16, enter this amount on line 17, and go to line 18
. . . . . . . . . . . .
Multiply line 12 by 50% (0.50), but don't enter more than $10,000 . .
13
Subtract $20,000 from line 12. If line 12 is
$20,000 or less, enter -0. . . . . .
14
Multiply line 14 by 20% (0.20) . . . . . . . . . . . . . .
15
Minimum distribution allowance. Subtract line 15 from line 13 . . . . . . . . . . . .
Subtract line 16 from line 12
. . . . . . . . . . . . . . . . . . . . . . .
Federal estate tax attributable to lump-sum distribution
. . . . . . . . . . . . . .
Subtract line 18 from line 17. If line 11 is zero, skip lines 20 through 22 and go to line 23
. . .
Divide line 11 by line 12 and enter the result as a decimal (rounded to at
.
least three places) . . . . . . . . . . . . . . . . . .
20
Multiply line 16 by the decimal on line 20 . . . . . . . . . .
21
Subtract line 21 from line 11
. . . . . . . . . . . . . .
22
Multiply line 19 by 10% (0.10) . . . . . . . . . . . . . . . . . . . . . . .
Tax on amount on line 23. Use the Tax Rate Schedule in the instructions . . . . . . . . .
Multiply line 24 by 10.0. If line 11 is zero, skip lines 26 through 28, enter this amount on
line 29, and go to line 30
. . . . . . . . . . . . . . . . . . . . . . . .
Multiply line 22 by 10% (0.10) . . . . . . . . . . . . . .
26
Tax on amount on line 26. Use the Tax Rate Schedule in the
instructions . . . . . . . . . . . . . . . . . . . .
27
Multiply line 27 by 10.0 . . . . . . . . . . . . . . . . . . . . . . . . .
Subtract line 28 from line 25. Multiple recipients see instructions
. . . . . . . . . . ▶
Tax on lump-sum distribution. Add lines 7 and 29. Also include this amount in the total on Form
1040, line 44; Form 1040NR, line 42; or Form 1041, Schedule G, line 1b . . . . . . . . ▶

For Paperwork Reduction Act Notice, see instructions.

Page 24

Cat. No. 13187U

1
2
3

√

4

√

√
√

5a

5b

10,000
2,000

8
9
10
11

140,000

12

140,000

16
17
18
19

140,000

23
24

14,000
2,227

25

22,270

28
29

22,270

30

√

140,000
-0-

140,000

24,270

Form 4972 (2016)

Publication 575 (2016)

Example 2. Mary Brown, who was born in 1935, sold
her business in 2016. She withdrew her entire interest in
the qualified profit-sharing plan she had set up as the sole
proprietor.
The cash part of the distribution, $160,000, is all ordinary income and is shown on her Form 1099-R below.
She chooses to figure the tax on this amount using the
10-year tax option. Mary also received an annuity contract

as part of the distribution from the plan. Box 8, Form
1099-R, shows that the current actuarial value of the annuity was $10,000. She enters these figures on Form
4972 (shown later).
After completing Form 4972, she includes the tax of
$28,070 in the total on Form 1040, line 44.

CORRECTED (if checked)
PAYER’S name, street address, city or town, state or province,
country, and ZIP or foreign postal code

$

Brown’s Real Estate
Profit-Sharing Plan
2101 Chelsea Court
Anytown, Nevada 89300
PAYER’S federal identification
number

160000.00

2016

160000.00

Form

2a Taxable amount

$

2b Taxable amount
not determined

RECIPIENT’S identification
number

10-0000000

OMB No. 1545-0119

1 Gross distribution

005-00-6789

Total
distribution

3 Capital gain (included
in box 2a)

$
/Designated Roth
contributions or
insurance premiums

Mary Brown
$

25000.00

7 Distribution
code(s)

Street address (including apt. no.)

12 Mill Avenue

IRA/
SEP/
SIMPLE

distribution

Anytown, Nevada 89300
within 5 years

FATCA filing
11 1st year of
desig. Roth contrib. requirement

$

12 State tax withheld

$
$
Form

1099-R

Publication 575 (2016)

www.irs.gov/form1099r

withheld

32000.00

6 Net unrealized
appreciation in
employer’s securities

$
8 Other

This information is
being furnished to
the Internal
Revenue Service.

%

%
10000.00
9b Total employee contributions

$

13 State/Payer’s state no. 14 State distribution

$
$
15 Local tax withheld

Account number (see instructions)

Report this
income on your
federal tax
return. If this
form shows
federal income
tax withheld in
box 4, attach
this copy to
your return.

$

7A

City or town, state or province, country, and ZIP or foreign postal code 9a Your percentage of total
10 Amount allocable to IRR

Copy B

X

4 Federal income tax

$

5 Employee contributions

RECIPIENT’S name

1099-R

Distributions From
Pensions, Annuities,
Retirement or
Profit-Sharing
Plans, IRAs,
Insurance
Contracts, etc.

$
$
16 Name of locality

17 Local distribution

$
$
Department of the Treasury - Internal Revenue Service

Page 25

Form

4972

Department of the Treasury
Internal Revenue Service (99)

Tax on Lump-Sum Distributions

OMB No. 1545-0193

2016

(From Qualified Plans of Participants Born Before January 2, 1936)
▶

Information about Form 4972 and its instructions is available at www.irs.gov/form4972.
▶ Attach to Form 1040, Form 1040NR, or Form 1041.

Attachment
Sequence No. 28
Identifying number

Name of recipient of distribution

Mary Brown
Complete this part to see if you can use Form 4972
Part I

005-00-6789
Yes No

1

Was this a distribution of a plan participant’s entire balance (excluding deductible voluntary employee
contributions and certain forfeited amounts) from all of an employer’s qualified plans of one kind (for
example, pension, profit-sharing, or stock bonus)? If “No,” don't use this form . . . . . . . . . .
2
Did you roll over any part of the distribution? If “Yes,” don't use this form
. . . . . . . . . . .
3
Was this distribution paid to you as a beneficiary of a plan participant who was born before January 2, 1936?
4
Were you (a) a plan participant who received this distribution, (b) born before January 2, 1936, and (c) a
participant in the plan for at least 5 years before the year of the distribution?
. . . . . . . . . .
If you answered “No” to both questions 3 and 4, don't use this form.
5a Did you use Form 4972 after 1986 for a previous distribution from your own plan? If “Yes,” don't use this
form for a 2016 distribution from your own plan . . . . . . . . . . . . . . . . . . . .
b If you are receiving this distribution as a beneficiary of a plan participant who died, did you use Form 4972
for a previous distribution received as a beneficiary of that participant after 1986? If “Yes,” don't use this
form for this distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Complete this part to choose the 20% capital gain election (see instructions)
Part II
6
Capital gain part from Form 1099-R, box 3 . . . . . . . . . . . . . . . . . . .
6
7
Multiply line 6 by 20% (0.20) . . . . . . . . . . . . . . . . . . . . . . ▶
7
If you also choose to use Part III, go to line 8. Otherwise, include the amount from line 7 in the
total on Form 1040, line 44; Form 1040NR, line 42; or Form 1041, Schedule G, line 1b.
Complete this part to choose the 10-year tax option (see instructions)
Part III
8

9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

If you completed Part II, enter the amount from Form 1099-R, box 2a minus box 3. If you didn't
complete Part II, enter the amount from box 2a. Multiple recipients (and recipients who elect to
include net unrealized appreciation (NUA) in taxable income) see instructions . . . . . . .
Death benefit exclusion for a beneficiary of a plan participant who died before August 21, 1996 .
Total taxable amount. Subtract line 9 from line 8 . . . . . . . . . . . . . . . . .
Current actuarial value of annuity from Form 1099-R, box 8. If none, enter -0- . . . . . . .
Adjusted total taxable amount. Add lines 10 and 11. If this amount is $70,000 or more, skip lines
13 through 16, enter this amount on line 17, and go to line 18
. . . . . . . . . . . .
Multiply line 12 by 50% (0.50), but don't enter more than $10,000 . .
13
Subtract $20,000 from line 12. If line 12 is
$20,000 or less, enter -0. . . . . .
14
Multiply line 14 by 20% (0.20) . . . . . . . . . . . . . .
15
Minimum distribution allowance. Subtract line 15 from line 13 . . . . . . . . . . . .
Subtract line 16 from line 12
. . . . . . . . . . . . . . . . . . . . . . .
Federal estate tax attributable to lump-sum distribution
. . . . . . . . . . . . . .
Subtract line 18 from line 17. If line 11 is zero, skip lines 20 through 22 and go to line 23
. . .
Divide line 11 by line 12 and enter the result as a decimal (rounded to at
. 0588
least three places) . . . . . . . . . . . . . . . . . .
20
Multiply line 16 by the decimal on line 20 . . . . . . . . . .
21
10,000
Subtract line 21 from line 11
. . . . . . . . . . . . . .
22
Multiply line 19 by 10% (0.10) . . . . . . . . . . . . . . . . . . . . . . .
Tax on amount on line 23. Use the Tax Rate Schedule in the instructions . . . . . . . . .
Multiply line 24 by 10.0. If line 11 is zero, skip lines 26 through 28, enter this amount on
line 29, and go to line 30
. . . . . . . . . . . . . . . . . . . . . . . .
1,000
Multiply line 22 by 10% (0.10) . . . . . . . . . . . . . .
26
Tax on amount on line 26. Use the Tax Rate Schedule in the
110
instructions . . . . . . . . . . . . . . . . . . . .
27
Multiply line 27 by 10.0 . . . . . . . . . . . . . . . . . . . . . . . . .
Subtract line 28 from line 25. Multiple recipients see instructions
. . . . . . . . . . ▶
Tax on lump-sum distribution. Add lines 7 and 29. Also include this amount in the total on Form
1040, line 44; Form 1040NR, line 42; or Form 1041, Schedule G, line 1b . . . . . . . . ▶

For Paperwork Reduction Act Notice, see instructions.

Page 26

Cat. No. 13187U

1
2
3

√

4

√

√
√

5a

5b

8
9
10
11

160,000

12

170,000

16
17
18
19

160,000
10,000

170,000
170,000

23
24

17,000
2,917

25

29,170

28
29

1,100
28,070

30

√

28,070

Form 4972 (2016)

Publication 575 (2016)

Rollovers
If you withdraw cash or other assets from a qualified retirement plan in an eligible rollover distribution, you can
generally defer tax on the distribution by rolling it over to
another qualified retirement plan, a traditional IRA or, after
2 years of participation in a SIMPLE IRA sponsored by
your employer, a SIMPLE IRA under that plan. You don't
include the amount rolled over in your income until you receive it in a distribution from the recipient plan or IRA without rolling over that distribution. (For information about
rollovers from traditional IRAs, see chapter 1 of Pub.
590-A.)
If you roll over the distribution to a traditional IRA, you
can't deduct the amount rolled over as an IRA contribution. When you later withdraw it from the IRA, you can't
use the optional methods discussed earlier under
Lump­Sum Distributions to figure the tax.
Self-employed individuals are generally treated as employees for the rules on the tax treatment of distributions,
including the rules for rollovers.
See Designated Roth accounts, later, for information
on rollovers (including in-plan Roth rollovers) related to
those accounts. Also, see Rollovers to Roth IRAs, later,
for information on rollovers from a qualified retirement
plan to a Roth IRA.
Qualified retirement plan. For this purpose, the following plans are qualified retirement plans.
A qualified employee plan.
A qualified employee annuity.
A tax-sheltered annuity plan (403(b) plan).
An eligible state or local government section 457 deferred compensation plan.
Eligible rollover distribution. An eligible rollover distribution is any distribution of all or any part of the balance to
your credit in a qualified retirement plan except:
1. Any of a series of substantially equal distributions
paid at least once a year over:
a. Your lifetime or life expectancy,
b. The joint lives or life expectancies of you and your
beneficiary, or
c. A period of 10 years or more,
2. A required minimum distribution (discussed later under Tax on Excess Accumulation),
3. Hardship distributions,
4. Corrective distributions of excess contributions or excess deferrals, and any income allocable to these distributions, or of excess annual additions and any allocable gains (see Corrective distributions of excess
plan contributions, at the beginning of Taxation of
Nonperiodic Payments, earlier),
Publication 575 (2016)

5. A loan treated as a distribution because it doesn't satisfy certain requirements either when made or later
(such as upon default), unless the participant's accrued benefits are reduced (offset) to repay the loan
(see Loans Treated as Distributions, earlier),
6. Dividends paid on employer securities, and
7. The cost of life insurance coverage.
In addition, a distribution to the plan participant's beneficiary generally isn't treated as an eligible rollover distribution. However, see Qualified domestic relations order
(QDRO), Rollover by surviving spouse, and Rollovers by
nonspouse beneficiary, later.
Rollover of nontaxable amounts. You may be able to
roll over the nontaxable part of a distribution (such as your
after-tax contributions) made to another qualified retirement plan that is a qualified employee plan or a 403(b)
plan, or to a traditional or Roth IRA. The transfer must be
made either through a direct rollover to a qualified plan or
403(b) plan that separately accounts for the taxable and
nontaxable parts of the rollover or through a rollover to a
traditional or Roth IRA.
If you roll over only part of a distribution that includes
both taxable and nontaxable amounts, the amount you roll
over is treated as coming first from the taxable part of the
distribution.
Any after-tax contributions that you roll over into your
traditional IRA become part of your basis (cost) in your
IRAs. To recover your basis when you take distributions
from your IRA, you must complete Form 8606, Nondeductible IRAs, for the year of the distribution. For more information, see the Form 8606 instructions.
Withholding requirements. If an eligible rollover distribution is paid to you, the payer must withhold 20% of it.
This applies even if you plan to roll over the distribution to
another qualified retirement plan or to an IRA. However,
you can avoid withholding by choosing the direct rollover
option, discussed later. Also, see Choosing the right op­
tion at the end of this discussion.
Exceptions. An eligible rollover distribution isn't subject to withholding to the extent it consists of net unrealized appreciation from employer securities that can be excluded from your gross income. (For a discussion of the
tax treatment of a distribution of employer securities, see
Figuring the Taxable Amount under Taxation of Nonperi­
odic Payments, earlier.)
In addition, withholding from an eligible rollover distribution paid to you isn't required if:
The distribution and all previous eligible rollover distributions you received during the tax year from the
same plan (or, at the payer's option, from all your employer's plans) total less than $200, or
The distribution consists solely of employer securities,
plus cash of $200 or less in lieu of fractional shares.

Page 27

Direct rollover option. You can choose to have any part
or all of an eligible rollover distribution paid directly to another qualified retirement plan that accepts rollover
distributions or to a traditional or Roth IRA.
There is an automatic rollover requirement for mandatory distributions. A mandatory distribution is a distribution
made without your consent and before you reach age 62
or normal retirement age, whichever is later. The automatic rollover requirement applies if the distribution is
more than $1,000 and is an eligible rollover distribution.
You can choose to have the distribution paid directly to
you or rolled over directly to your traditional or Roth IRA or
another qualified retirement plan. If you don't make this
choice, the plan administrator will automatically roll over
the distribution into an IRA of a designated trustee or issuer.
No tax withheld. If you choose the direct rollover option, or have an automatic rollover, no tax will be withheld
from any part of the distribution that is directly paid to the
trustee of the other plan. If any part of the eligible rollover
distribution is paid to you, the payer must generally withhold 20% of it for income tax.
Payment to you option. If an eligible rollover distribution
is paid to you, 20% generally will be withheld for income
tax. However, the full amount is treated as distributed to
you even though you actually receive only 80%. You generally must include in income any part (including the part
withheld) that you don't roll over within 60 days to another
qualified retirement plan or to a traditional or Roth IRA.
If you are under age 591 2 when a distribution is paid to
you, you may have to pay a 10% tax (in addition to the
regular income tax) on the taxable part (including any tax
withheld) that you don't roll over. See Tax on Early Distri­
butions, later.
Partial rollovers. If you receive a lump-sum distribution, it may qualify for special tax treatment. See
Lump­Sum Distributions, earlier. However, if you roll over
any part of the distribution, the part you keep doesn't qualify for special tax treatment.
Rolling over more than amount received. If
you decide to roll over an amount equal to the dis­
CAUTION tribution before withholding, your contribution to
the new plan or IRA must include other money (for exam­
ple, from savings or amounts borrowed) to replace the
amount withheld.

!

Example. You receive an eligible rollover distribution
of $10,000 from your employer's qualified employee plan.
The payer withholds $2,000, so you actually receive
$8,000. If you want to roll over the entire $10,000 to postpone including that amount in your income, you will have
to get $2,000 from some other source to add to the $8,000
you actually received.
If you roll over only $8,000, you must include the
$2,000 not rolled over in your income for the distribution
year. Also, you may be subject to the 10% additional tax
on the $2,000 if it was distributed to you before you
reached age 591 2.
Page 28

Time for making rollover. You generally must complete
the rollover of an eligible rollover distribution paid to you
by the 60th day following the day on which you receive the
distribution from your employer's plan.
The IRS may waive the 60-day requirement where the
failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or
other event beyond your reasonable control.
Example. In the previous example, you received the
distribution on June 30. To postpone including it in your income, you must complete the rollover by August 29, the
60th day following June 30.
Ways to get a waiver of the 60-day rollover requirement. There are three ways to obtain a waiver of the
60-day requirement:
You qualify for an automatic waiver,
You self-certify that you met the requirements of a
waiver, or
You request and receive a private letter ruling granting
a waiver.
For more information about requesting a waiver of the
60-day rollover requirement, rollovers permitted between
the various types of retirement plans (including IRAs), and
other topics regarding rollovers see Rollovers in Pub.
590-A, Contributions to Individual Retirement Arrangements (IRAs).
Frozen deposits. If an amount distributed to you becomes a frozen deposit in a financial institution during the
60-day period after you receive it, the rollover period is extended. An amount is a frozen deposit if you can't withdraw it because of either:
The bankruptcy or insolvency of the financial institution, or
A restriction on withdrawals by the state in which the
institution is located because of the bankruptcy or insolvency (or threat of it) of one or more financial institutions in the state.
The 60-day rollover period is extended by the period for
which the amount is a frozen deposit and doesn't end earlier than 10 days after the amount is no longer a frozen deposit.
Retirement bonds. If you redeem retirement bonds purchased under a qualified bond purchase plan, you can roll
over the proceeds that exceed your basis tax free into an
IRA or qualified employer plan. Subsequent distributions
of those proceeds, however, don't qualify for the 10-year
tax option or capital gain treatment.
Annuity contracts. If an annuity contract was distributed
to you by a qualified retirement plan, you can roll over an
amount paid under the contract that is otherwise an eligible rollover distribution. For example, you can roll over a
single sum payment you receive upon surrender of the
contract to the extent it is taxable and isn't a required minimum distribution.
Publication 575 (2016)

Rollovers of property. To roll over an eligible rollover
distribution of property, you must either roll over the actual
property distributed or sell it and roll over the proceeds.
You can't keep the distributed property and roll over cash
or other property.
If you sell the distributed property and roll over all the
proceeds, no gain or loss is recognized on the sale. The
sale proceeds (including any portion representing an increase in value) are treated as part of the distribution and
aren't included in your gross income.
If you roll over only part of the proceeds, you are taxed
on the part you keep. You must allocate the proceeds you
keep between the part representing ordinary income from
the distribution (its value upon distribution) and the part
representing gain or loss from the sale (its change in value
from its distribution to its sale).
Example 1. On September 4, 2016, Paul received an
eligible rollover distribution from his employer's noncontributory qualified employee plan of $50,000 in nonemployer
stock. On September 24, 2016, he sold the stock for
$60,000. On October 2, 2016, he contributed $60,000
cash to a traditional IRA. Paul doesn't include either the
$50,000 eligible rollover distribution or the $10,000 gain
from the sale of the stock in his income. The entire
$60,000 rolled over will be ordinary income when he withdraws it from his IRA.
Example 2. The facts are the same as in Example 1,
except that Paul sold the stock for $40,000 and contributed $40,000 to the IRA. Paul doesn't include the $50,000
eligible rollover distribution in his income and doesn't deduct the $10,000 loss from the sale of the stock. The
$40,000 rolled over will be ordinary income when he withdraws it from his IRA.
Example 3. The facts are the same as in Example 1,
except that Paul rolled over only $45,000 of the $60,000
proceeds from the sale of the stock. The $15,000 proceeds he didn't roll over includes part of the gain from the
stock sale. Paul reports $2,500 ($10,000 ÷ $60,000 ×
$15,000) as capital gain and $12,500 ($50,000 ÷ $60,000
× $15,000) as ordinary income.
Example 4. The facts are the same as in Example 2,
except that Paul rolled over only $25,000 of the $40,000
proceeds from the sale of the stock. The $15,000 proceeds he didn’t roll over includes part of the loss from the
stock sale. Paul reports $3,750 ($10,000 ÷ $40,000 ×
$15,000) capital loss and $18,750 ($50,000 ÷ $40,000 ×
$15,000) ordinary income.
Property and cash distributed. If both cash and property were distributed and you didn't roll over the entire distribution, you may designate what part of the rollover is allocable to the cash distribution and what part is allocable
to the proceeds from the sale of the distributed property. If
the distribution included an amount that isn’t taxable
(other than the net unrealized appreciation in employer
securities) as well as an eligible rollover distribution, you
may also designate what part of the nontaxable amount is
allocable to the cash distribution and what part is allocable
Publication 575 (2016)

to the property. Your designation must be made by the
due date for filing your tax return, including extensions.
You can't change your designation after that date. If you
don't make a designation on time, the rollover amount or
the nontaxable amount must be allocated on a ratable basis.
Qualified domestic relations order (QDRO). You may
be able to roll over tax free all or part of a distribution from
a qualified retirement plan that you receive under a
QDRO. (See Qualified domestic relations order (QDRO)
under General Information, earlier.) If you receive the distribution as an employee's spouse or former spouse (not
as a nonspousal beneficiary), the rollover rules apply to
you as if you were the employee.
Rollover by surviving spouse. You may be able to roll
over tax free all or part of a distribution from a qualified retirement plan you receive as the surviving spouse of a deceased employee. The rollover rules apply to you as if you
were the employee. You can roll over the distribution into
a qualified retirement plan or a traditional or Roth IRA. For
a rollover to a Roth IRA, see Rollovers to Roth IRAs, later.
A distribution paid to a beneficiary other than the employee's surviving spouse is generally not an eligible rollover distribution. However, see Rollovers by nonspouse
beneficiary next.
Rollovers by nonspouse beneficiary. If you are a designated beneficiary (other than a surviving spouse) of a
deceased employee, you may be able to roll over tax free
all or a portion of a distribution you receive from an eligible
retirement plan of the employee. The distribution must be
a direct trustee-to-trustee transfer to your traditional or
Roth IRA that was set up to receive the distribution. The
transfer will be treated as an eligible rollover distribution
and the receiving plan will be treated as an inherited IRA.
For information on inherited IRAs, see What if You Inherit
an IRA? in chapter 1 of Pub. 590-B.
How to report. Enter the total distribution (before income
tax or other deductions were withheld) on Form 1040,
line 16a; Form 1040A, line 12a; or Form 1040NR,
line 17a. This amount should be shown in box 1 of Form
1099-R. From this amount, subtract any contributions
(usually shown in box 5 of Form 1099-R) that were taxable
to you when made. From that result, subtract the amount
that was rolled over either directly or within 60 days of receiving the distribution. Enter the remaining amount, even
if zero, on Form 1040, line 16b; Form 1040A, line 12b; or
Form 1040NR, line 17b. Also, write "Rollover" next to the
line.
Written explanation to recipients. The administrator of
a qualified retirement plan must, within a reasonable period of time before making an eligible rollover distribution,
provide you with a written explanation. It must tell you
about all of the following.
Your right to have the distribution paid tax free directly
to another qualified retirement plan or to a traditional
or Roth IRA.
Page 29

The requirement to withhold tax from the distribution if
it isn't directly rolled over.
The nontaxability of any part of the distribution that
you roll over within 60 days after you receive the distribution.
Other qualified retirement plan rules that apply, including those for lump-sum distributions, alternate payees,
and cash or deferred arrangements.
How the distribution rules of the plan to which you roll
over the distribution may differ from the rules that apply to the plan making the distribution in their restrictions and tax consequences.
Reasonable period of time. The plan administrator
must provide you with a written explanation no earlier than
90 days and no later than 30 days before the distribution
is made. However, you can choose to have a distribution
made less than 30 days after the explanation is provided
as long as the following two requirements are met.
You must have the opportunity to consider whether or
not you want to make a direct rollover for at least 30
days after the explanation is provided.
The information you receive must clearly state that
you have the right to have 30 days to make a decision.
Contact the plan administrator if you have any questions
regarding this information.
Designated Roth accounts. You can roll over an eligible rollover distribution from a designated Roth account
into another designated Roth account or a Roth IRA. If
you want to roll over the part of the distribution that isn't included in income, you must make a direct rollover of the
entire distribution (see Direct rollover option, earlier) or
you can roll over the entire amount (or any portion) to a
Roth IRA. Also, if you are a plan participant in a 401(k),
403(b), or 457(b) plan, your plan may permit you to roll
over amounts in those plans to a designated Roth account
within the same plan (in-plan Roth rollover). The rollover
of any untaxed amounts are included in income. See
In­plan Roth rollovers below.
A qualified distribution from a designated Roth account
isn't includible in income. (A qualified distribution is defined earlier in the discussion of designated Roth accounts under Taxation of Periodic Payments). Generally,
you can't have a qualified distribution within the 5-tax-year
period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. If a
direct rollover is made from a designated Roth account
under another plan or an in-plan Roth rollover is made, the
5-tax-year period of participation begins on the first day of
your tax year for which you first had designated Roth contributions made to the account either making the distribution or receiving the distribution, whichever was earlier.
If you roll over only part of an eligible rollover distribution that isn't a qualified distribution and not paid as a direct rollover contribution, the part rolled over is considered
to be first from the income portion of the distribution.

account. The distribution consists of $11,000 (investment)
and $3,000 (income earned). Within 60 days of receipt,
you roll over $7,000 into a Roth IRA. The $7,000 consists
of $3,000 of income and $4,000 of investment. Since you
rolled over the part of the distribution that could be included in gross income (income earned), none of the distribution is included in gross income.
In-plan Roth rollovers. If you are a participant in a
401(k), 403(b), or 457(b) plan, your plan may permit you
to roll over any vested amounts from those plans to a designated Roth account within the same plan. The in-plan
Roth rollover must be an eligible rollover distribution (defined earlier under Eligible rollover distribution). Any untaxed amounts included in the in-plan Roth rollover must
be included in income in the year you receive the distribution.
You can make the in-plan Roth rollover by direct transfer of the amount from the non-Roth account to your designated Roth account within the same plan. The 20%
mandatory withholding doesn't apply to in-plan Roth rollovers made by direct rollover. You can also effect the
in-plan Roth rollover by receiving an eligible rollover distribution from your 401(k), 403(b), or 457(b) plan and within
60 days deposit it into a designated Roth account in the
same plan.
Your plan must provide a written explanation of the
consequences of making an in-plan Roth rollover. In-plan
Roth rollovers can't be undone. Unlike rollovers to Roth
IRAs, you can't later recharacterize an in-plan Roth rollover.
If you received employer securities as a part of

TIP your in­plan Roth rollover distribution, the rollover

is treated as a distribution for the purpose of net
unrealized appreciation (NUA). See Distributions of em­
ployer securities, earlier.
Mandatory 20% withholding. A payor must normally
withhold 20% when a rollover distribution is paid to you.
However, some part of your distribution may not be subject to the mandatory 20% withholding. Otherwise nondistributable amounts aren't subject to the mandatory 20%
withholding. An example of otherwise nondistributable
amounts are employer matching contributions in a 401(k)
plan. See Payment to you option, earlier.

!

CAUTION

You can't roll over amounts from your Traditional
TSP to your Roth TSP. See Pub. 721 for more de­
tails.

How to report. Enter the total amount of the distribution before income tax or deductions were withheld on
Form 1040, line 16a; Form 1040A, line 12a; or Form
1040NR, line 17a. This amount should be shown in box 1
of Form 1099-R. From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were
taxable to you when made. Enter the remaining amount,
even if zero, on Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR, line 17b.

Example. You receive an eligible rollover distribution
that isn't a qualified distribution from your designated Roth
Page 30

Publication 575 (2016)

If you must include any amount in your gross in­
come, you may have to increase your withholding
CAUTION or make estimated tax payments. See Pub. 505,
Tax Withholding and Estimated Tax.

!

Rollovers to Roth IRAs. You can roll over distributions
directly from a qualified retirement plan (other than a designated Roth account) to a Roth IRA. You must include in
your gross income distributions from a qualified retirement
plan (other than a designated Roth account) that you
would have had to include in income if you hadn't rolled
them over into a Roth IRA. You don't include in gross income any part of a distribution from a qualified retirement
plan that is a return of contributions to the plan that were
taxable to you when paid. In addition, the 10% tax on early
distributions doesn't apply.
Any amount rolled over into a Roth IRA is subject to the
same rules for converting a traditional IRA into a Roth IRA.
For more information, see Converting From Any Tradi­
tional IRA Into a Roth IRA in chapter 1 of Pub. 590-A.
How to report. Enter the total amount of the distribution before income tax or deductions were withheld on
Form 1040, line 16a; Form 1040A, line 12a; or Form
1040NR, line 17a. This amount should be shown in box 1
of Form 1099-R. From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were
taxable to you when made. Enter the remaining amount,
even if zero, on Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR, line 17b.
If you must include any amount in your gross in­
come, you may have to increase your withholding
CAUTION or make estimated tax payments. See Pub. 505,
Tax Withholding and Estimated Tax.

!

Choosing the right option. Table 1 may help you decide which distribution option to choose. Carefully compare the effects of each option.

Table 1. Comparison of Payment to You
Versus Direct Rollover
Affected item
Withholding

Additional tax

When to report
as income

Result of a payment to Result of a direct
you
rollover
The payer must withhold
There is no withholding.
20% of the taxable part.
If you are under age 59
1
2, a 10% additional tax
may apply to the taxable
part (including an
amount equal to the tax
withheld) that isn't rolled
over.
Any taxable part
(including the taxable
part of any amount
withheld) not rolled over
is income to you in the
year paid.

Publication 575 (2016)

There is no 10%
additional tax. See Tax
on Early Distributions,
later.
Any taxable part isn't
income to you until later
distributed to you from
the new plan or IRA.
However, see Rollovers
to Roth IRAs, earlier, for
an exception.

Qualified settlement income. If you are a qualified taxpayer and you received qualified settlement income in
connection with the Exxon Valdez litigation, you can contribute all or part of it to an eligible retirement plan. This includes a qualified retirement plan. The amount contributed can’t exceed $100,000 (reduced by the amount of
qualified settlement income contributed to an eligible retirement plan in prior tax years) or the amount of qualified
settlement income received during the tax year. Contributions for the year can be made until the due date for filing
your tax return, not including extensions.
Qualified settlement income that you contribute to a
qualified retirement plan will be treated as having been
rolled over in a direct trustee-to-trustee transfer within 60
days of the distribution. The amount contributed isn’t included in your taxable income and it isn’t considered to be
investment in the contract.
You are a qualified taxpayer if you are:
A plaintiff in the civil action In re Exxon Valdez, No.
89-095-CV (HRH) (Consolidated) (D. Alaska), or
The beneficiary of the estate of a plaintiff who acquired the right to receive qualified settlement income
from that plaintiff and who is the spouse or immediate
relative of that plaintiff.
Qualified settlement income is any interest or punitive
damage awards which are:
Otherwise includible in income, and
Received in connection with the Exxon Valdez civil action described (whether pre- or post-judgment and
whether related to a settlement or a judgment).
Qualified settlement income can be received as periodic
payments or as a lump sum. See Pub. 525, Taxable and
Nontaxable Income, for information on how to report Exxon Valdez settlement income.
Special rule for Roth IRAs and designated Roth
accounts. Qualified settlement income that is contributed to a Roth IRA or a designated Roth account will be:
Included in your taxable income for the year the qualified settlement income was received, and
Treated as part of your cost basis (investment in the
contract) that isn’t taxable when distributed.

Special Additional Taxes
To discourage the use of pension funds for purposes
other than normal retirement, the law imposes additional
taxes on early distributions of those funds and on failures
to withdraw the funds timely. Ordinarily, you won't be subject to these taxes if you roll over all early distributions you
receive, as explained earlier, and begin drawing out the
funds at a normal retirement age, in prorated amounts
over your life expectancy. These special additional taxes
are the taxes on:
Early distributions, and
Page 31

Excess accumulation (not receiving minimum distributions).
These taxes are discussed in the following sections.
If you must pay either of these taxes, report them on
Form 5329. However, you don't have to file Form 5329 if
you owe only the tax on early distributions and your Form
1099-R correctly shows a “1” in box 7. Instead, enter 10%
of the taxable part of the distribution on Form 1040, line 59
and enter “No” under the heading “Other Taxes” to the left
of line 59. If you file Form 1040NR, enter 10% of the taxable part of the distribution on line 57 and enter “No” under
the heading “Other Taxes” to the left of line 57.
Even if you don't owe any of these taxes, you may have
to complete Form 5329 and attach it to your Form 1040 or
Form 1040NR. This applies if you meet an exception to
the tax on early distributions but box 7 of your Form
1099-R doesn't indicate an exception.

Tax on Early Distributions
Most distributions (both periodic and nonperiodic) from
qualified retirement plans and nonqualified annuity contracts made to you before you reach age 591 2 are subject
to an additional tax of 10%. This tax applies to the part of
the distribution that you must include in gross income. It
doesn't apply to any part of a distribution that is tax free,
such as amounts that represent a return of your cost or
that were rolled over to another retirement plan. It also
doesn’t apply to corrective distributions of excess deferrals, excess contributions, or excess aggregate contributions (discussed earlier under Taxation of Nonperiodic
Payments).
For this purpose, a qualified retirement plan is:
A qualified employee plan (including a qualified cash
or deferred arrangement (CODA) under Internal Revenue Code section 401(k)),
A qualified employee annuity plan,
A tax-sheltered annuity plan (403(b) plan), or
An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a
direct transfer or rollover from one of the other plans
listed here or an IRA).
5% rate on certain early distributions from deferred
annuity contracts. If an early withdrawal from a deferred
annuity is otherwise subject to the 10% additional tax, a
5% rate may apply instead. A 5% rate applies to distributions under a written election providing a specific schedule for the distribution of your interest in the contract if, as
of March 1, 1986, you had begun receiving payments under the election. On line 4 of Form 5329, multiply the line 3
amount by 5% instead of 10%. Attach an explanation to
your return.
Distributions from designated Roth accounts allocable to in-plan Roth rollovers within the 5-year period.
If, within the 5-year period starting with the first day of your
Page 32

tax year in which you rolled over an amount from your
401(k), 403(b), or 457(b) plan to a designated Roth account, you take a distribution from the designated Roth
account, you may have to pay the additional 10% tax on
early distributions. You generally must pay the 10% additional tax on any amount attributable to the part of the
in-plan Roth rollover that you had to include in income (recapture amount). A separate 5-year period applies to
each in-plan Roth rollover. See Figuring your recapture
amount, later, to determine the recapture amount, if any.
The 5-year period used for determining whether the
10% early distribution tax applies to a distribution allocable to an in-plan Roth rollover is separately determined for
each in-plan Roth rollover, and isn't necessarily the same
as the 5-year period used for determining whether a distribution is a qualified distribution.
Figuring your recapture amount. For any early distribution in 2016 from your designated Roth account that
is allocable to an in-plan Roth rollover, you allocate the
amount from your 2016 Form 1099-R, box 10, to the
amounts, if any, you have rolled over into that designated
Roth account.
If you haven’t taken a distribution from your designated
Roth account before 2016, then allocate the amount in
box 10 of your 2016 Form 1099-R to the amounts you reported on the lines listed in the Recapture Allocation Chart
(filling in the Taxable column first, and then the Nontaxable column for each year) until you have covered the entire amount in box 10.
If you have taken a distribution from your designated
Roth account prior to 2016, then allocate the amount in
box 10 of your 2016 Form 1099-R to the amounts you reported on the lines listed in the Recapture Allocation Chart
(filling in the Taxable column first, and then the Nontaxable column for each year). However, don't start at the beginning, instead begin with the first line that hasn’t been
used fully for a previous distribution.
Your recapture amount is the sum of the amounts you
allocated for 2012 through 2016 under the Taxable column in the Recapture Allocation Chart. You will also include this amount on Form 5329, line 1.
Example. You had an in-plan Roth rollover in 2016 of
$50,000. This is your first in-plan Roth rollover. Your 2016
Form 1040 includes $30,000 on line 16b, the taxable portion of the in-plan Roth rollover, and $50,000 on line 16a,
the in-plan Roth rollover including $20,000 of basis.
In December of 2016, at age 57, you took a distribution
of $35,000 from your designated Roth account. The 2016
Form 1099-R shows the distribution of $35,000 reported
in box 1, the taxable portion of the distribution of $3,500
reported in box 2a, and the amount of $31,500 allocable
to the in-plan Roth rollover reported in box 10. Since you
had no in-plan Roth rollovers in prior years, you would allocate the $31,500 reported in box 10 of Form 1099-R as
shown in the Example Recapture Allocation Chart.
The recapture amount, the amount subject to tax on
early distributions allocable to the in-plan Roth rollover, is
$30,000 ($31,500 − $1,500). Your amount subject to tax
on early distributions reported on Form 5329, line 1, for
Publication 575 (2016)

Recapture Allocation Chart
Taxable
Year
2010
2011
2012
2013
2014
2015
2016

Keep for Your Records

Taxable

Nontaxable (Basis)

Form 8606, line 23 . . . . . . . .
Form 1040, line 16b; Form
1040A, line 12b; or Form
1040NR, line 17b* . . . . . . . . .
Form 1040, line 16b; Form
1040A, line 12b; or Form
1040NR, line 17b* . . . . . . . . .
Form 1040, line 16b; Form
1040A, line 12b; or Form
1040NR, line 17b* . . . . . . . . .
Form 1040, line 16b; Form
1040A, line 12b; or Form
1040NR, line 17b* . . . . . . . . .
Form 1040, line 16b; Form
1040A, line 12b; or Form
1040NR, line 17b* . . . . . . . . .
Form 1040, line 16b; Form
1040A, line 12b; or Form
1040NR, line 17b* . . . . . . . . .

Form 8606, line 22 . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .
orm 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . .
Note: The sum of the totals for each column should equal the amount reported on your 2016 Form 1099-R, box 10.
*Only include those amounts attributable to an in-plan Roth rollover.
**Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and attributable to an in-plan
Roth rollover.

this distribution is $33,500 ($30,000 allocable to Form
1040, line 16b, and $3,500 from Form 1099-R, box 2a).
Exceptions to tax. Certain early distributions are excepted from the early distribution tax. If the payer knows that
an exception applies to your early distribution, distribution
code “2,” “3,” or “4” should be shown in box 7 of your Form
1099-R and you don't have to report the distribution on
Form 5329. If an exception applies but distribution code
“1” (early distribution, no known exception) is shown in
box 7, you must file Form 5329. Enter the taxable amount
of the distribution shown in box 2a of your Form 1099-R
on line 1 of Form 5329. On line 2, enter the amount that
can be excluded and the exception number shown in the
Form 5329 instructions.
If distribution code “1” is incorrectly shown on

TIP your Form 1099­R for a distribution received

when you were age 591 2 or older, include that dis­
tribution on Form 5329. Enter exception number “12” on
line 2.
General exceptions. The tax doesn’t apply to distributions that are:
Made as part of a series of substantially equal periodic
payments (made at least annually) for your life (or life
expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a
Publication 575 (2016)

qualified retirement plan, the payments must begin after separation from service). See Substantially equal
periodic payments, later,
Made because you are totally and permanently disabled (see Note below), or
Made on or after the death of the plan participant or
contract holder.
Note. You are considered disabled if you can furnish
proof that you can't do any substantial gainful activity because of your physical or mental condition. A physician
must determine that your condition can be expected to result in death or be of a long, continued, or indefinite duration.
Additional exceptions for qualified retirement
plans. The tax doesn’t apply to distributions that are:
From a qualified retirement plan (other than an IRA)
after your separation from service in or after the year
you reached age 55 (age 50 for qualified public safety
employees) (see Separation from service, later),
From a qualified retirement plan (other than an IRA) to
an alternate payee under a qualified domestic relations order,
From a qualified retirement plan to the extent you
have deductible medical expenses that exceed 10%
(7.5% if you or your spouse were born before January
Page 33

Example. George separated from service from his employer at age 49. In the year he reached age 55 he took a
distribution from his retirement plan. Because he separated from service before he reached age 55, he didn’t meet
the requirements for the exception for a distribution made
from a qualified retirement plan (other than an IRA) after
separating from service in or after reaching age 55 (age
50 for qualified public safety employees).

2, 1952) of your adjusted gross income, whether or
not you itemize your deductions for the year,
From an employer plan under a written election that
provides a specific schedule for distribution of your
entire interest if, as of March 1, 1986, you had separated from service and had begun receiving payments
under the election,
From an employee stock ownership plan for dividends
on employer securities held by the plan,

Qualified public safety employees. If you are a
qualified public safety employee, distributions made from
a governmental defined benefit pension plan aren’t subject to the additional tax on early distributions. You are a
qualified public safety employee if you provided police
protection, firefighting services, or emergency medical
services for a state or municipality, and you separated
from service in or after the year you attained age 50.

From a qualified retirement plan due to an IRS levy of
the plan, or
From elective deferral accounts under 401(k) or
403(b) plans, or similar arrangements, that are qualified reservist distributions.
Phased retirement annuity payments made to federal
employees. See Pub. 721 for more information on the
phased retirement program.
Separation from service. In order to meet the requirements for the first exception in the list above, you
must have separated from service in or after the year in
which you reach age 55 (or age 50 for qualified public
safety employees). You can’t separate from service before that year, wait until you are age 55 (or age 50 for
qualified public safety employees), and take a distribution.

Example Recapture Allocation Chart
Taxable
Year
2010
2011
2012
2013
2014
2015
2016

Taxable
Form 8606, line 23 . . . . . . . . . . . . .
Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR,
line 17b* . . . . . . . . . . . . . . . . . . . . . .
Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR,
line 17b* . . . . . . . . . . . . . . . . . . . . . .
Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR,
line 17b* . . . . . . . . . . . . . . . . . . . . . .
Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR,
line 17b* . . . . . . . . . . . . . . . . . . . . . .
Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR,
line 17b* . . . . . . . . . . . . . . . . . . . . . .
Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR,
line 17b* . . . . . . . . . . . . . . . . . . . . . .

Qualified reservist distributions. A qualified reservist distribution isn’t subject to the additional tax on early
distributions. A qualified reservist distribution is a distribution (a) from elective deferrals under a section 401(k) or
403(b) plan, or a similar arrangement, (b) to an individual
ordered or called to active duty (because he or she is a
member of a reserve component) for a period of more
than 179 days or for an indefinite period, and (c) made
during the period beginning on the date of the order or call
and ending at the close of the active duty period. You

Keep for Your Records
Nontaxable (Basis)
Form 8606, line 22 . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
1040NR, line 17a** . . . . . . . . . . .
Form 1040, line 16a; Form
1040A, line 12a; or Form
$30,000 1040NR, line 17a** . . . . . . . . . . .
$30,000 Total . . . . . . . . . . . . . . . . . . . . . . . .

$1,500

$1,500
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
Note: The sum of the totals for each column should equal the amount reported on your 2016 Form 1099-R, box 10.
*Only include those amounts attributable to an in-plan Roth rollover.
**Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and attributable to an in-plan
Roth rollover.

Page 34

Publication 575 (2016)

must be ordered or called to active duty after September
11, 2001.
You can choose to recontribute part or all of the

TIP distributions to an IRA. These additional contribu­

tions must be made within 2 years after your ac­
tive­duty period ends. Any amount recontributed must be
reported on Form 8606 as a nondeductible contribution.
You can’t take a deduction for these contributions. How­
ever, the normal dollar limitations for contributions to IRAs
do not apply to these special contributions, and you can
make regular contributions to your IRA, up to the amount
otherwise allowable.
Additional exceptions for nonqualified annuity
contracts. The tax doesn’t apply to distributions that are:
From a deferred annuity contract to the extent allocable to investment in the contract before August 14,
1982,
From a deferred annuity contract under a qualified
personal injury settlement,
From a deferred annuity contract purchased by your
employer upon termination of a qualified employee
plan or qualified employee annuity plan and held by
your employer until your separation from service, or
From an immediate annuity contract (a single premium contract providing substantially equal annuity
payments that start within 1 year from the date of purchase and are paid at least annually).
Substantially equal periodic payments. Payments
are substantially equal periodic payments if they are made
in accordance with one of the following methods.
1. Required minimum distribution method. Under
this method, the resulting annual payment is redetermined for each year.
2. Fixed amortization method. Under this method, the
resulting annual payment is determined once for the
first distribution year and remains the same amount
for each succeeding year.
3. Fixed annuitization method. Under this method, the
resulting annual payment is determined once for the
first distribution year and remains the same amount
for each succeeding year.
For information on these methods, see Revenue Ruling
2002-62, which is on page 710 of Internal Revenue Bulletin 2002-42 at www.irs.gov/pub/irs­irbs/irb02­42.pdf.
A change from method (2) or (3) to method (1)

TIP isn’t treated as a modification to which the recap­
ture tax (discussed next) applies.

Recapture tax for changes in distribution method
under equal payment exception. An early distribution
recapture tax may apply if, before you reach age 591 2, the
distribution method under the equal periodic payment exception changes (for reasons other than your death or disability). The tax applies if the method changes from the
method requiring equal payments to a method that
Publication 575 (2016)

wouldn’t have qualified for the exception to the tax. The
recapture tax applies to the first tax year to which the
change applies. The amount of tax is the amount that
would have been imposed had the exception not applied,
plus interest for the deferral period.
The recapture tax also applies after you reach age 591 2
if your payments under a distribution method that qualifies
for the exception are modified within 5 years of the date of
the first payment. In that case, the tax applies only to payments distributed before you reach age 591 2.
Report the recapture tax and interest on line 4 of Form
5329. Attach an explanation to the form. Don’t write the
explanation next to the line or enter any amount for the recapture on lines 1 or 3 of the form.

Tax on Excess Accumulation
To make sure that most of your retirement benefits are
paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive
from qualified retirement plans must begin no later than
your required beginning date (defined later). The payments each year can’t be less than the minimum required
distribution.
If the actual distributions to you in any year are less
than the minimum required distribution (RMD) for that
year, you are subject to an additional tax. The tax equals
50% of the part of the required minimum distribution that
wasn’t distributed.
For this purpose, a qualified retirement plan includes:
A qualified employee plan,
A qualified employee annuity plan,
An eligible section 457 deferred compensation plan,
or
A tax-sheltered annuity plan (403(b) plan) (for benefits
accruing after 1986).
Waiver. The tax may be waived if you establish that the
shortfall in distributions was due to reasonable error and
that reasonable steps are being taken to remedy the
shortfall. If you believe you qualify for this relief, you must
file Form 5329 and attach a letter of explanation. In Part
VIII of that form, enter “RC” and the amount you want
waived in parentheses on the dotted line next to line 52.
Subtract this amount from the total shortfall you figured
without regard to the waiver and enter the result on
line 52.
State insurer delinquency proceedings. You might
not receive the minimum distribution because assets are
invested in a contract issued by an insurance company in
state insurer delinquency proceedings. If your payments
are reduced below the minimum because of these proceedings, you should contact your plan administrator. Under certain conditions, you won’t have to pay the 50% excise tax.

Page 35

Required beginning date. Unless the rule for 5% owners applies, you generally must begin to receive distributions from your qualified retirement plan by April 1 of the
year that follows the later of:
The calendar year in which you reach age 701 2, or
The calendar year in which you retire from employment with the employer maintaining the plan.
However, your plan may require you to begin to receive
distributions by April 1 of the year that follows the year in
which you reach age 701 2, even if you haven’t retired.
If you reach age 701 2 in 2016, you may be required to
receive your first distribution by April 1, 2017. Your required distribution then must be made for 2017 by December 31, 2017.
5% owners. If you are a 5% owner, you must begin to
receive distributions from the plan by April 1 of the year
that follows the calendar year in which you reach age 701 2.
This rule doesn’t apply if your retirement plan is a government or church plan.
You are a 5% owner if, for the plan year ending in the
calendar year in which you reach age 701 2, you own (or
are considered to own under section 318 of the Internal
Revenue Code) more than 5% of the outstanding stock
(or more than 5% of the total voting power of all stock) of
the employer, or more than 5% of the capital or profits interest in the employer.
Age 701 2. You reach age 701 2 on the date that is 6 calendar months after the date of your 70th birthday. For example, if your 70th birthday was on June 30, 2016, you
reached age 701 2 on December 30, 2016. If your 70th
birthday was on July 1, 2016, you reached age 701 2 on
January 1, 2017.
Required distributions. By the required beginning date,
you must either:
Receive your entire interest in the plan (for a tax-sheltered annuity, your entire benefit accruing after 1986),
or
Begin receiving periodic distributions in annual
amounts calculated to distribute your entire interest
(for a tax-sheltered annuity, your entire benefit accruing after 1986) over your life or life expectancy or over
the joint lives or joint life expectancies of you and a
designated beneficiary (or over a shorter period).
After the starting year for periodic distributions, you
must receive at least the minimum required distribution for
each year by December 31 of that year. (The starting year
is the year in which you reach age 701 2 or retire, whichever
applies in determining your required beginning date.) If no
distribution is made in your starting year, the minimum required distributions for 2 years must be made the following year (one by April 1 and one by December 31).
Example. You retired under a qualified employee plan
in 2015. You reached age 701 2 on August 20, 2016. For
2016 (your starting year), you must receive a minimum
amount from your retirement plan by April 1, 2017. You

Page 36

must receive the minimum required distribution for 2017
by December 31, 2017.
Distributions after the employee's death. If the employee was receiving periodic distributions before his or
her death, any payments not made as of the time of death
must be distributed at least as rapidly as under the distribution method being used at the date of death.
If the employee dies before the required beginning
date, the entire account must be distributed under one of
the following rules.
Rule 1. The distribution must be completed by December 31 of the fifth year following the year of the
employee's death.
Rule 2. The distribution must be made in annual
amounts over the life or life expectancy of the designated beneficiary.
The terms of the plan may determine which of these
two rules apply. If the plan permits the employee or the
beneficiary to choose the rule that applies, this choice
must be made by the earliest date a distribution would be
required under either of the rules. Generally, this date is
December 31 of the year following the year of the employee's death.
If the employee or the beneficiary didn’t choose either
rule and the plan doesn’t specify the rule that applies, distribution must be made under Rule 2 if the employee has
a designated beneficiary or under Rule 1 if the employee
doesn’t have a designated beneficiary.
Distributions under Rule 2 generally must begin by December 31 of the year following the year of the employee's
death. However, if the surviving spouse is the beneficiary,
distributions need not begin until December 31 of the year
the employee would have reached age 701 2, if later.
If the surviving spouse is the designated beneficiary
and distributions are to be made under Rule 2, a special
rule applies if the spouse dies after the employee but before distributions are required to begin. In this case, distributions may be made to the spouse's beneficiary under
either Rule 1 or Rule 2, as though the beneficiary were the
employee's beneficiary and the employee died on the
spouse's date of death. However, if the surviving spouse
remarries after the employee's death and the new spouse
is designated as the spouse's beneficiary, this special rule
applicable to surviving spouses doesn’t apply to the new
spouse.
Minimum distributions from an annuity plan. Special
rules may apply if you receive distributions from your retirement plan in the form of an annuity. Your plan administrator should be able to give you information about these
rules.
Minimum distributions from an individual account
plan. Your plan administrator should be able to give you
information about how the amount of your required distribution was figured.
If there is an account balance to be distributed from
your plan (not as an annuity), your plan administrator must
figure the minimum amount that must be distributed from
the plan each year.
Publication 575 (2016)

What types of installments are allowed? The minimum amount that must be distributed for any year may be
made in a series of installments (for example, monthly or
quarterly) as long as the total payments for the year made
by the date required aren’t less than the minimum amount
required for the year.
More than minimum. Your plan can distribute more in
any year than the minimum amount required for that year
but, if it does, you won’t receive credit for the additional
amount in determining the minimum amount required for
future years. However, any amount distributed in your
starting year will be credited toward the amount required
to be distributed by April 1 of the following year.
Combining multiple accounts to satisfy the minimum
distribution requirements. Generally, the required minimum distribution must be figured separately for each account. Each qualified employee retirement plan and qualified annuity plan must be considered individually in
satisfying its distribution requirements. However, if you
have more than one tax-sheltered annuity account, you
can total the required distributions and then satisfy the requirement by taking distributions from any one (or more)
of the tax-sheltered annuities.

Survivors and
Beneficiaries
Generally, a survivor or beneficiary reports pension or annuity income in the same way the plan participant would
have reported it. However, some special rules apply, and
they are covered elsewhere in this publication as well as
in this section.
Estate tax deduction. You may be entitled to a deduction for estate tax if you receive amounts included in your
income as income in respect of a decedent under a joint
and survivor annuity that was included in the decedent's
estate. You can deduct the part of the total estate tax that
was based on the annuity, provided that the decedent
died after his or her annuity starting date. (For details, see
section 1.691(d)-1 of the regulations.) Deduct it in equal
amounts over your remaining life expectancy.
If the decedent died before the annuity starting date of
a deferred annuity contract and you receive a death benefit under that contract, the amount you receive (either in a
lump sum or as periodic payments) in excess of the decedent's cost is included in your gross income as income in
respect of a decedent for which you may be able to claim
an estate tax deduction.
You can take the estate tax deduction as an itemized
deduction on Schedule A (Form 1040). This deduction
isn’t subject to the 2%-of-adjusted-gross-income limit on
miscellaneous deductions. See Pub. 559, Survivors, Executors, and Administrators, for more information on the
estate tax deduction.
Survivors of employees. Distributions the beneficiary of
a deceased employee gets may be accrued salary payPublication 575 (2016)

ments; distributions from employee profit-sharing, pension, annuity, or stock bonus plans; or other items. Some
of these should be treated separately for tax purposes.
The treatment of these distributions depends on what they
represent.
Salary or wages paid after the death of the employee
are usually the beneficiary's ordinary income. If you are a
beneficiary of an employee who was covered by any of
the retirement plans mentioned, you can exclude from income nonperiodic distributions received that totally relieve
the payer from the obligation to pay an annuity. The
amount that you can exclude is equal to the deceased
employee's investment in the contract (cost).
If you are entitled to receive a survivor annuity on the
death of an employee, you can exclude part of each annuity payment as a tax-free recovery of the employee's investment in the contract. You must figure the taxable and
tax-free part of each payment using the method that applies as if you were the employee. For more information,
see Taxation of Periodic Payments, earlier.
Survivors of retirees. Benefits paid to you as a survivor
under a joint and survivor annuity must be included in your
gross income. Include them in income in the same way
the retiree would have included them in gross income.
See Partly Taxable Payments under Taxation of Periodic
Payments, earlier.
If the retiree reported the annuity under the Three-Year
Rule and recovered all of the cost tax free, your survivor
payments are fully taxable.
If the retiree was reporting the annuity under the General Rule, you must apply the same exclusion percentage
to your initial survivor annuity payment called for in the
contract.The resulting tax-free amount will then remain
fixed for the initial and future payments. Increases in the
survivor annuity are fully taxable. See Pub. 939 for more
information on the General Rule.
If the retiree was reporting the annuity under the Simplified Method, the part of each payment that is tax free is
the same as the tax-free amount figured by the retiree at
the annuity starting date. This amount remains fixed even
if the annuity payments are increased or decreased. See
Simplified Method under Taxation of Periodic Payments,
earlier.
Guaranteed payments. If you receive guaranteed
payments as the decedent's beneficiary under a life annuity contract, don’t include any amount in your gross income until your distributions plus the tax-free distributions
received by the life annuitant equal the cost of the contract. All later distributions are fully taxable. This rule
doesn’t apply if it is possible for you to collect more than
the guaranteed amount. For example, it doesn’t apply to
payments under a joint and survivor annuity.

How To Get Tax Help
If you have questions about a tax issue, need help preparing your tax return, or want to download free publications,

Page 37

forms, or instructions, go to IRS.gov and find resources
that can help you right away.
Preparing and filing your tax return. Find free options
to prepare and file your return on IRS.gov or in your local
community if you qualify.
The Volunteer Income Tax Assistance (VITA) program
offers free tax help to people who generally make $54,000
or less, persons with disabilities, the elderly, and limited-English-speaking taxpayers who need help preparing
their own tax returns. The Tax Counseling for the Elderly
(TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE
volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.
You can go to IRS.gov and click on the Filing tab to see
your options for preparing and filing your return which include the following.
Free File. Go to IRS.gov/freefile. See if you qualify to
use brand-name software to prepare and e­file your
federal tax return for free.
VITA. Go to IRS.gov/vita, download the free IRS2Go
app, or call 1-800-906-9887 to find the nearest VITA
location for free tax preparation.
TCE. Go to IRS.gov/tce, download the free IRS2Go
app, or call 1-888-227-7669 to find the nearest TCE
location for free tax preparation.
Getting answers to your tax law questions.
On IRS.gov get answers to your tax questions
anytime, anywhere.
Go to IRS.gov/help or IRS.gov/letushelp pages for a
variety of tools that will help you get answers to some
of the most common tax questions.
Go to IRS.gov/ita for the Interactive Tax Assistant, a
tool that will ask you questions on a number of tax law
topics and provide answers. You can print the entire
interview and the final response for your records.
Go to IRS.gov/pub17 to get Pub. 17, Your Federal Income Tax for Individuals, which features details on
tax-saving opportunities, 2016 tax changes, and thousands of interactive links to help you find answers to
your questions. View it online in HTML or as a PDF or,
better yet, download it to your mobile device to enjoy
eBook features.
You may also be able to access tax law information in
your electronic filing software.
Getting tax forms and publications. Go to IRS.gov/
forms to view, download, or print all of the forms and publications you may need. You can also download and view
popular tax publications and instructions (including the
1040 instructions) on mobile devices as an eBook at no
charge. Or, you can go to IRS.gov/orderforms to place an
order and have forms mailed to you within 10 business
days.

Page 38

Using direct deposit. The fastest way to receive a tax
refund is to combine direct deposit and IRS e­file. Direct
deposit securely and electronically transfers your refund
directly into your financial account. Eight in 10 taxpayers
use direct deposit to receive their refund. IRS issues more
than 90% of refunds in less than 21 days.
Delayed refund for returns claiming certain credits.
Due to changes in the law, the IRS can’t issue refunds before February 15, 2017, for returns that claim the earned
income credit (EIC) or the additional child tax credit
(ACTC). This applies to the entire refund, not just the portion associated with these credits.
Getting a transcript or copy of a return. The quickest
way to get a copy of your tax transcript is to go to IRS.gov/
transcripts. Click on either "Get Transcript Online" or "Get
Transcript by Mail" to order a copy of your transcript. If
you prefer, you can:
Order your transcript by calling 1-800-908-9946.
Mail Form 4506-T or Form 4506T-EZ (both available
on IRS.gov).
Using online tools to help prepare your return. Go to
IRS.gov/tools for the following.
The Earned Income Tax Credit Assistant (IRS.gov/eic)
determines if you are eligible for the EIC.
The Online EIN Application (IRS.gov/ein) helps you
get an employer identification number.
The IRS Withholding Calculator (IRS.gov/w4app) estimates the amount you should have withheld from your
paycheck for federal income tax purposes.
The First Time Homebuyer Credit Account Look­up
(IRS.gov/homebuyer) tool provides information on
your repayments and account balance.
The Sales Tax Deduction Calculator (IRS.gov/
salestax) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040), choose
not to claim state and local income taxes, and you
didn’t save your receipts showing the sales tax you
paid.
Resolving tax-related identity theft issues.
The IRS doesn’t initiate contact with taxpayers by
email or telephone to request personal or financial information. This includes any type of electronic communication, such as text messages and social media
channels.
Go to IRS.gov/idprotection for information and videos.
If your SSN has been lost or stolen or you suspect you
are a victim of tax-related identity theft, visit IRS.gov/id
to learn what steps you should take.
Checking on the status of your refund.
Go to IRS.gov/refunds.
Due to changes in the law, the IRS can’t issue refunds
before February 15, 2017, for returns that claim the
Publication 575 (2016)

EIC or the ACTC. This applies to the entire refund, not
just the portion associated with these credits.
Download the official IRS2Go app to your mobile device to check your refund status.
Call the automated refund hotline at 1-800-829-1954.
Making a tax payment. The IRS uses the latest encryption technology to ensure your electronic payments are
safe and secure. You can make electronic payments online, by phone, and from a mobile device using the
IRS2Go app. Paying electronically is quick, easy, and
faster than mailing in a check or money order. Go to
IRS.gov/payments to make a payment using any of the
following options.
IRS Direct Pay: Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.
Debit or credit card: Choose an approved payment
processor to pay online, by phone, and by mobile device.
Electronic Funds Withdrawal: Offered only when filing your federal taxes using tax preparation software
or through a tax professional.
Electronic Federal Tax Payment System: Best option for businesses. Enrollment is required.
Check or money order: Mail your payment to the address listed on the notice or instructions.
Cash: If cash is your only option, you may be able to
pay your taxes at a participating retail store.
What if I can’t pay now? Go to IRS.gov/payments for
more information about your options.
Apply for an online payment agreement (IRS.gov/opa)
to meet your tax obligation in monthly installments if
you can’t pay your taxes in full today. Once you complete the online process, you will receive immediate
notification of whether your agreement has been approved.
Use the Offer in Compromise Pre­Qualifier (IRS.gov/
oic) to see if you can settle your tax debt for less than
the full amount you owe.
Checking the status of an amended return. Go to
IRS.gov and click on Where’s My Amended Return?
(IRS.gov/wmar) under the “Tools” bar to track the status of
Form 1040X amended returns. Please note that it can
take up to 3 weeks from the date you mailed your amended return for it show up in our system and processing it
can take up to 16 weeks.
Understanding an IRS notice or letter. Go to IRS.gov/
notices to find additional information about responding to
an IRS notice or letter.
Contacting your local IRS office. Keep in mind, many
questions can be resolved on IRS.gov without visiting an
IRS Tax Assistance Center (TAC). Go to IRS.gov/
letushelp for the topics people ask about most. If you still
Publication 575 (2016)

need help, IRS TACs provide tax help when a tax issue
can’t be handled online or by phone. All TACs now provide service by appointment so you’ll know in advance
that you can get the service you need without waiting. Before you visit, go to IRS.gov/taclocator to find the nearest
TAC, check hours, available services, and appointment
options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on “Local
Offices.”
Watching IRS videos. The IRS Video portal
(IRSvideos.gov) contains video and audio presentations
for individuals, small businesses, and tax professionals.
Getting tax information in other languages. For taxpayers whose native language isn’t English, we have the
following resources available. Taxpayers can find information on IRS.gov in the following languages.
Spanish (IRS.gov/spanish).
Chinese (IRS.gov/chinese).
Vietnamese (IRS.gov/vietnamese).
Korean (IRS.gov/korean).
Russian (IRS.gov/russian).
The IRS TACs provide over-the-phone interpreter service in over 170 languages, and the service is available
free to taxpayers.

The Taxpayer Advocate Service Is
Here To Help You
What is the Taxpayer Advocate Service?
The Taxpayer Advocate Service (TAS) is an independ­
ent organization within the IRS that helps taxpayers and
protects taxpayer rights. Our job is to ensure that every
taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.

What Can the Taxpayer Advocate Service
Do For You?
We can help you resolve problems that you can’t resolve
with the IRS. And our service is free. If you qualify for our
assistance, you will be assigned to one advocate who will
work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:
Your problem is causing financial difficulty for you,
your family, or your business,
You face (or your business is facing) an immediate
threat of adverse action, or
You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
date promised.

How Can You Reach Us?
We have offices in every state, the District of Columbia,
and Puerto Rico. Your local advocate’s number is in your
Page 39

local directory and at taxpayeradvocate.irs.gov. You can
also call us at 1-877-777-4778.

How Can You Learn About Your Taxpayer
Rights?
The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Our Tax
Toolkit at taxpayeradvocate.irs.gov can help you understand what these rights mean to you and how they apply.
These are your rights. Know them. Use them.

Low Income Taxpayer Clinics
Low Income Taxpayer Clinics (LITCs) serve individuals
whose income is below a certain level and need to resolve
tax problems such as audits, appeals, and tax collection
disputes. Some clinics can provide information about taxpayer rights and responsibilities in different languages for
individuals who speak English as a second language. To
find a clinic near you, visit IRS.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List.

How Else Does the Taxpayer Advocate
Service Help Taxpayers?
TAS works to resolve large-scale problems that affect
many taxpayers. If you know of one of these broad issues,
please report it to us at IRS.gov/sams.

Page 40

Publication 575 (2016)

Worksheet A. Simplified Method

Keep for Your Records

1. Enter the total pension or annuity payments received this year. Also, add this amount to the total for
Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a . . . . . . . . . . . . . . . . . . . . . . . . . .

1.

2. Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion.* See
Cost (Investment in the Contract), earlier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.

Note: If your annuity starting date was before this year and you completed this worksheet last year,
skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount
of your pension or annuity has changed). Otherwise, go to line 3.
3. Enter the appropriate number from Table 1 below. But if your annuity starting date was after 1997 and
the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2
below. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.

4. Divide line 2 by the number on line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.

5. Multiply line 4 by the number of months for which this year's payments were made. If your annuity
starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11.
Otherwise, go to line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.

6. Enter any amounts previously recovered tax free in years after 1986. This is the amount shown on
line 10 of your worksheet for last year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.

7. Subtract line 6 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.

8. Enter the smaller of line 5 or line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.

9. Taxable amount for year. Subtract line 8 from line 1. Enter the result, but not less than zero. Also,
add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.
Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead.
If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers,
earlier, before entering an amount on your tax return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.

10. Was your annuity starting date before 1987?
Yes. STOP. Don’t complete the rest of this worksheet.
No. Add lines 6 and 8. This is the amount you have recovered tax free through 2016. You will need
this number if you need to fill out this worksheet next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.

11. Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you won’t have to complete
this worksheet next year. The payments you receive next year will generally be fully taxable . . . . . . . .

11.

* A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996.

Table 1 for Line 3 Above

IF the age at
annuity starting date was ...
55 or under
56-60
61-65
66-70
71 or over

AND your annuity starting date was—
BEFORE November 19, 1996,
AFTER November 18, 1996,
enter on line 3 ...
enter on line 3 ...
300
260
240
170
120

360
310
260
210
160

Table 2 for Line 3 Above
IF the combined ages at annuity
starting date were ...
110 or under
111-120
121-130
131-140
141 or over

Publication 575 (2016)

THEN enter on line 3 ...
410
360
310
260
210

Page 41

Index

To help us develop a more useful index, please let us know if you have ideas for index entries.
See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

403(b) plans:
Defined 4
Loans from, without tax
consequences 18
Simplified Method to be used 12
5% owners 36

A

Age 70 36
Alimony (See Qualified domestic relations
orders (QDROs))
Annuities:
5% rate on early distributions 32
Defined 3
Fixed-period 4, 13
Guaranteed payments 37
Joint and survivor annuities 4
Minimum distributions from 36
Payments under 5
Qualified plan annuity starting before
November 19, 1996 12
Rollovers 28
(See also Rollovers)
Single-life 4, 13
Starting date of 10, 12, 13, 16
Before November 19, 1996 15
Distribution on or after 16
Transfers of contracts 19
Types of 4
Variable annuities 4, 5
Assistance (See Tax help)

B

Beneficiaries 37

C

Capital gains:
Lump-sum distributions 22
Cash withdrawals (See Nonperiodic
payments)
Child support (See Qualified domestic
relations orders (QDROs))
Corrective distributions of excess plan
contributions 15
Costs:
Investment in the contract 10
Lump-sum distribution, determination
for 22

D

Death benefits 5
Death of employee 36, 37
Death of retiree 37
Deductible voluntary employee
contributions 12
Defined contribution plans 17
Designated Roth accounts:
Costs 11
Defined 4
Qualified distributions 11
Rollovers 30
Disability pensions 4, 5
Distributions 26
(See also Rollovers)
Beginning date for 36
Early distributions and penalty tax 28,
32

Page 42

Employer securities 16
Loans treated as 18
Lump-sum 16, 20–25
Minimum required 35
Nonperiodic, taxation of 15
Periodic, taxation of 11
Public safety employees 34
Qualified reservist 34
U.S. savings bonds 18
Dividends 15

E

Early withdrawal from deferred interest
account:
Penalty tax on 28, 32
Employer securities, distributions
of 16
Estate tax 22
Deduction 37
Estimated tax 10
Excess accumulation, tax on 35
Excess plan contributions, corrective
distributions of 15

F

Figuring taxable amount 15–18
Fixed-period annuities 4, 13
Foreign employment contributions 11
Form:
4972 20
W-4P 9
Form 1040/1040A:
Rollovers 29
Form 1040X:
Changing your mind on lump-sum
treatment 21
Form 1099-INT:
U.S. savings bonds distributions 18
Form 1099-R:
10-year tax option for lump-sum
distribution 23
Corrected form 2
Corrective distributions of excess plan
contributions 15
Exceptions to tax 33
Investment in the contract 10
Loan treated as distribution from
plan 19
Rollovers 29
Tax-free exchanges 20
Form 4972:
10-year tax option for lump-sum
distribution 23
Lump-sum distributions 20, 21
Form 5329:
Recapture tax 35
Special additional taxes (penalty
taxes) 32, 33
Form RRB-1099-R 7
Form W-4P:
Withholding from retirement plan
payments 9, 10
Form W-4V:
Voluntary withholding request for social
security or railroad retirement
benefits 10
Frozen deposits 28
Fully taxable payments 11

G

General Rule 12, 15
Death of retiree under 37
Investment in the contract,
determination of 10
Guaranteed payments 13

H

Home purchase:
Loans from qualified plans for 18

I

Identity theft 38
Individual retirement accounts:
Minimum distributions from 36
Rollovers 27
In-plan Roth rollovers 30
Interest deduction:
Denial on loan from plan 19

J

Joint and survivor annuities 4

L

Loans treated as distributions 18
Local government employees:
Section 457 plans 5
Losses:
Lump-sum distribution 22
Lump-sum distributions 16, 20–25
10-year tax option 22
Capital gain treatment 22
Defined 20
Election of 21
Form 4972 20

M

Military and Government Disability
Pensions:
Service-connected disability 6
Minimum required distributions 35
Missing children, photographs of 2
Multiple annuitants 13
Multiple-lives annuities 13

N

Net Investment Income Tax 5, 18
Net unrealized appreciation (NUA) 22
Deferring tax on 16
Nonperiodic payments:
Loan treated as 18
Taxation of 15
Nonqualified plans:
Distribution before annuity start date 17
General Rule to be used 15
Loans treated as distributions from 19
Nonresident aliens:
Railroad retirement 6

P

Partial rollovers 28

Publication 575 (2016)

Partly taxable payments 12
Penalty taxes:
Early distributions 32
Excess accumulation 35
Pensions:
Defined 3
Disability pensions 4, 5
Types of 4
Periodic payments:
Taxation of 11
Withholding tax 9
Publications (See Tax help)
Public safety officers insurance
premiums 6
Public school employees:
Tax-sheltered annuity plans
for (See 403(b) plans)

Q

Qualified domestic relations orders
(QDROs) 4, 29
Alternate payee under and lump-sum
distribution 20
Qualified employee annuities:
Defined 3
Simplified Method to be used 12
Qualified employee plans:
Defined 3
Simplified Method to be used 12
Qualified plans 15
(See also specific type of plan)
Distribution before annuity starting
date 16
General Rule 15
Loans from, without tax
consequences 18
Rollovers 27
Qualified public safety employees 1,
34
Qualified settlement income:
Exxon Valdez litigation settlement 31

R

Railroad retirement benefits 6–9
Taxability of 10

Publication 575 (2016)

Recapture tax:
Changes in distribution method 35
Reemployment 20
Related employers and related
plans 19
Repayment of loan within 5 years 18
Required beginning date 36
Required distributions, minimum 35
Retirement bonds 28
Rollovers 27–31
20% tax rate on distribution 10
Comparison of direct payment vs. direct
rollover (Table 1) 31
Direct rollover to another qualified
plan 10, 28
In-plan Roth 30
Nonspouse beneficiary 29
Nontaxable amounts 27
Notice to recipients of eligible rollover
distribution 29
Property and cash distributed 29
Roth IRAs 31
SIMPLE Retirement Accounts 2
Substitution of other property 29
Surviving spouse making 29

S

Section 457 deferred compensation
plans 5
Securities of employer, distributions
of 16
Self-employed persons' rollovers 27
Service-connected disability 6
SIMPLE Retirement Accounts 2
Simplified Method 12
Death of retiree under 37
How to use 13
Investment in the contract,
determination of 10
Not allowed 13
Single-sum in connection with start of
payments 16
Single-life annuities 4, 13
Social security, tax on 10
State employees:
Section 457 plans 5

State insurer delinquency
proceedings 35
Surviving spouse:
Distribution rules for 36
Rollovers by 29

T

Tables:
Comparison of direct payment vs. direct
rollover (Table 1) 31
Tax-free exchanges 19
Tax help 37
Ten percent tax for early
withdrawal 28, 32
Ten-year tax option 22
Time for making rollover 28
Transfers of annuity contracts 19

U

U.S. savings bonds:
Distribution of 18

V

Variable annuities 4
Voluntary employee contributions 12

W

Withdrawals 5
Employees withdrawing
contributions 17
Withholding 9
10% rate used 10
20% of eligible rollover 27, 28, 30
Periodic payments 9
Railroad retirement 7
Worksheets:
Simplified Method 13
Worksheet A, illustrated 14
Worksheet A, Simplified Method 41

Page 43



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