taxmap/pubs/p721-001.htm#en_us_publink100028893This part of the publication is for retirees who retired on nondisability retirement. If you retired on disability, see Part III, Rules for Disability Retirement and Credit for the Elderly or the Disabled, later.
taxmap/pubs/p721-001.htm#en_us_publink100028894The statement you received from OPM when your CSRS or FERS annuity was approved shows the commencing date (the annuity starting date), the gross monthly rate of your annuity benefit, and your total contributions to the retirement plan (your cost). You will use this information to figure the tax-free recovery of your cost.
taxmap/pubs/p721-001.htm#en_us_publink100028895If you retire from federal government service on a regular annuity, your annuity starting date is the commencing date on your annuity statement from OPM. If something delays payment of your annuity, such as a late application for retirement, it does not affect the date your annuity begins to accrue or your annuity starting date.
taxmap/pubs/p721-001.htm#en_us_publink100028896This is the amount you were to get after any adjustment for electing a survivor's annuity or for electing the lump-sum payment under the alternative annuity option (if either applied) but before any deduction for income tax withholding, insurance premiums, etc.
taxmap/pubs/p721-001.htm#en_us_publink100028897Your monthly annuity payment contains an amount on which you have previously paid income tax. This amount represents part of your contributions to the retirement plan. Even though you did not receive the money that was contributed to the plan, it was included in your gross income for federal income tax purposes in the years it was taken out of your pay.
The cost of your annuity is the total of your contributions to the retirement plan, as shown on your annuity statement from OPM. If you elected the alternative annuity option, it includes any deemed deposits and any deemed redeposits that were added to your lump-sum credit. (See Lump-sum credit under Alternative Annuity Option, later.)
If you repaid contributions that you had withdrawn from the retirement plan earlier, or if you paid into the plan to receive full credit for service not subject to retirement deductions, the entire repayment, including any interest, is a part of your cost. You cannot claim an interest deduction for any interest payments. You cannot treat these payments as voluntary contributions; they are considered regular employee contributions.
taxmap/pubs/p721-001.htm#en_us_publink100028898How you figure the tax-free recovery of the cost of your CSRS or FERS annuity depends on your annuity starting date.
- If your annuity starting date is before July 2, 1986, either the Three-Year Rule or the General Rule (both discussed later) applies to your annuity.
- If your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the General Rule or the Simplified Method (discussed later).
- If your annuity starting date is after November 18, 1996, you must use the Simplified Method.
Under both the General Rule and the Simplified Method, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of your cost, and the taxable part that is the amount of each payment that is more than the part that represents your cost (unless such payment is used for purposes discussed under Distributions Used To Pay Insurance Premiums for Public Safety Officers, later). The tax-free part is a fixed dollar amount. It remains the same, even if your annuity is increased. Generally, this rule applies as long as you receive your annuity. However, see Exclusion limit, later.
taxmap/pubs/p721-001.htm#en_us_publink100028899 If you retired without a survivor annuity and report your annuity under the Simplified Method, do not change your tax-free monthly amount even if you later choose a survivor annuity.
If you retired without a survivor annuity and report your annuity under the General Rule, you must figure the tax-free part of your annuity using a new exclusion percentage if you later choose a survivor annuity and take reduced annuity payments. To figure the new exclusion percentage, reduce your cost by the amount you previously recovered tax free. Figure the expected return as of the date the reduced annuity begins. For details on the General Rule, see Publication 939.
taxmap/pubs/p721-001.htm#en_us_publink100028900If you retired with a survivor annuity payable to your spouse upon your death and you notify OPM that your marriage has ended, your annuity might be increased to remove the reduction for a survivor benefit. The increased annuity does not change the cost recovery you figured at the annuity starting date. The tax-free part of each annuity payment remains the same.
 | For more information about choosing or canceling a survivor annuity after retirement, contact OPM's Retirement Information Office at 1-888-767-6738 (customers within the local Washington, D.C. calling area must call 202-606-0500). |
taxmap/pubs/p721-001.htm#en_us_publink100028902Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years.
taxmap/pubs/p721-001.htm#en_us_publink100028903If your annuity starting date is after 1986, the total amount of annuity income that you (or the survivor annuitant) can exclude over the years as a return of your cost cannot exceed your total cost. Annuity payments you or your survivors receive after the total cost in the plan has been recovered are generally fully taxable.
taxmap/pubs/p721-001.htm#en_us_publink100028904Your annuity starting date is after 1986 and you exclude $100 a month under the Simplified Method. If your cost is $12,000, the exclusion ends after 10 years (120 months). Thereafter, your entire annuity is generally fully taxable.
taxmap/pubs/p721-001.htm#en_us_publink100028905If your annuity starting date is before 1987, you can continue to take your monthly exclusion figured under the General Rule or Simplified Method for as long as you receive your annuity. If you chose a joint and survivor annuity, your survivor can continue to take that same exclusion. The total exclusion may be more than your cost.
taxmap/pubs/p721-001.htm#en_us_publink100028906If your annuity starting date is after July 1, 1986, and the cost of your annuity has not been fully recovered at your (or the survivor annuitant's) death, a deduction is allowed for the unrecovered cost. The deduction is claimed on your (or your survivor's) final tax return as a miscellaneous itemized deduction (not subject to the 2%-of-adjusted-gross-income limit). If your annuity starting date is before July 2, 1986, no tax benefit is allowed for any unrecovered cost at death.
taxmap/pubs/p721-001.htm#en_us_publink100028907If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the tax-free part of your CSRS or FERS annuity. (OPM has figured the taxable amount of your annuity shown on your Form CSA 1099R using the Simplified Method.) You could have chosen to use either the Simplified Method or the General Rule if your annuity starting date is after July 1, 1986, but before November 19, 1996. The Simplified Method does not apply if your annuity starting date is before July 2, 1986.
Under the Simplified Method, you figure the tax-free part of each full monthly payment by dividing your cost by a number of months based on your age. This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. If your annuity starting date is after 1997 and your annuity includes a survivor benefit for your spouse, this number is based on your combined ages.
taxmap/pubs/p721-001.htm#en_us_publink100028908Use Worksheet A, Simplified Method (near the end of this publication), to figure your taxable annuity. Be sure to keep the completed worksheet. It will help you figure your taxable amounts for later years.
 | Instead of Worksheet A, you generally can use the Simplified Method Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR to figure your taxable annuity. However, you must use Worksheet A and Worksheet B in this publication if you chose the alternative annuity option, discussed later. |
taxmap/pubs/p721-001.htm#en_us_publink100028910See Your cost, earlier, for an explanation of your cost in the plan. If your annuity starting date is after November 18, 1996, and you chose the alternative annuity option (explained later), you must reduce your cost by the tax-free part of the lump-sum payment you received.
taxmap/pubs/p721-001.htm#en_us_publink100028911The number you enter on line 3 is the number of monthly annuity payments under the plan. Find the appropriate number from one of the tables at the bottom of the worksheet. If your annuity starting date is after 1997, use:
- Table 1 for an annuity without a survivor benefit, or
- Table 2 for an annuity with a survivor benefit.
If your annuity starting date is before 1998, use Table 1.
If you retired before 2008, the amount previously recovered tax free that you must enter on line 6 is the total amount from line 10 of last year's worksheet. If your annuity starting date is before November 19, 1996, and you chose the alternative annuity option, this amount includes the tax-free part of the lump-sum payment you received.
taxmap/pubs/p721-001.htm#en_us_publink100028913Bill Smith retired from the Federal Government on March 31, 2008, under an annuity that will provide a survivor benefit for his wife, Kathy. His annuity starting date is April 1, 2008, the annuity is paid in arrears, and he received his first monthly annuity payment on May 1, 2008. He must use the Simplified Method to figure the tax-free part of his annuity benefits.
Bill's monthly annuity benefit is $1,000. He had contributed $31,000 to his retirement plan and had received no distributions before his annuity starting date. At his annuity starting date, he was 65 and Kathy was 57.
Bill's completed Worksheet A is shown on the next page. To complete line 3, he used Table 2 at the bottom of the worksheet and found that 310 is the number in the second column opposite the age range that includes 122 (his and Kathy's combined ages). Bill keeps a copy of the completed worksheet for his records. It will help him (and Kathy, if she survives him) figure the taxable amount of the annuity in later years.
Bill's tax-free monthly amount is $100. (See line 4 of the worksheet.) If he lives to collect more than 310 monthly payments, he will generally have to include in his gross income the full amount of any annuity payments received after 310 payments have been made.
If Bill does not live to collect 310 monthly payments and his wife begins to receive monthly payments, she also will exclude $100 from each monthly payment until 310 payments (Bill's and hers) have been collected. If she dies before 310 payments have been made, a miscellaneous itemized deduction (not subject to the 2%-of-adjusted- gross-income limit) will be allowed for the unrecovered cost on her final income tax return.
taxmap/pubs/p721-001.htm#en_us_publink100028914If your annuity starting date is after November 18, 1996, you cannot use the General Rule to figure the tax-free part of your CSRS or FERS annuity. If your annuity starting date is after July 1, 1986, but before November 19, 1996, you could have chosen to use either the General Rule or the Simplified Method. If your annuity starting date is before July 2, 1986, you could have chosen to use the General Rule only if you could not use the Three-Year Rule.
Under the General Rule, you figure the tax-free part of each full monthly payment by multiplying the initial gross monthly rate of your annuity by an exclusion percentage. Figuring this percentage is complex and requires the use of actuarial tables. For these tables and other information about using the General Rule, see Publication 939.
taxmap/pubs/p721-001.htm#en_us_publink100028915If your annuity starting date was before July 2, 1986, you probably had to report your annuity using the Three-Year Rule. Under this rule, you excluded all the annuity payments from income until you fully recovered your cost. After your cost was recovered, all payments became fully taxable. You cannot use another rule to again exclude amounts from income.
The Three-Year Rule was repealed for retirees whose annuity starting date is after July 1, 1986.
taxmap/pubs/p721-001.htm#w46713c50 Worksheet A. Simplified Method for Bill Smith See the instructions in Part II of this publication under Simplified Method.
| 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. | $ 8,000 | | 2. | Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. See Your cost in Part II, Rules for Retirees, earlier | 2. | 31,000 | | 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. | 310 | | 4. | Divide line 2 by line 3 | 4. | 100 | | 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, skip lines 6 and 7 and enter this amount on line 8. Otherwise, go to line 6 | 5. | 800 | | 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. | 0 | | 7. | Subtract line 6 from line 2 | 7. | 31,000 | | 8. | Enter the smaller of line 5 or line 7 | 8. | 800 | | 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, or Form 1040A, line 12b. If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. If you are a retired public safety officer, see Distributions Used To Pay Insurance Premiums for Public Safety Officers in Part II before entering an amount on your tax return or Worksheet C, line 1 | 9. | $ 7,200 | | 10. | Was your annuity starting date before 1987?
 Yes.  Do not complete the rest of this worksheet.
 No. Add lines 6 and 8. This is the amount you have recovered tax free through 2008. You will need this number if you need to fill out this worksheet next year | 10. | 800 | | 11. | Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you will not have to complete this worksheet next year. The payments you receive next year will generally be fully taxable | 11. | $ 30,200 | Table 1 for Line 3 Above
| | | IF your age on your
annuity starting date was | | AND your annuity starting date was— | | | | before November 19, 1996,
THEN enter on line 3 | after November 18, 1996,
THEN enter on line 3 | | | 55 or under | 300 | 360 | | | 56–60 | 260 | 310 | | | 61–65 | 240 | 260 | | | 66–70 | 170 | 210 | | | 71 or over | 120 | 160 |
Table 2 for Line 3 Above
| | | IF the annuitants' combined ages on your annuity starting date were | | THEN enter on line 3 | | | | | | 110 or under | | 410 | | | | | | 111–120 | | 360 | | | | | | 121–130 | | 310 | | | | | | 131–140 | | 260 | | | | | | 141 or over | | 210 | | | |
* A death benefit exclusion of up to $5,000 applied to certain benefits received by survivors of employees who died before August 21, 1996.
|
taxmap/pubs/p721-001.htm#en_us_publink100028916If you are eligible, you may choose an alternative form of annuity. If you make this choice, you will receive a lump-sum payment equal to your contributions to the plan and a reduced monthly annuity. You are eligible to make this choice if you meet all of the following requirements.
- You are retiring, but not on disability.
- You have a life-threatening illness or other critical medical condition.
- You do not have a former spouse entitled to court ordered benefits based on your service.
If you are not eligible or do not choose this alternative annuity, you can skip the following discussion and go to Federal Gift Tax, later.
taxmap/pubs/p721-001.htm#en_us_publink100028917The lump-sum payment you receive under the alternative annuity option generally has a tax-free part and a taxable part. The tax-free part represents part of your cost. The taxable part represents part of the earnings on your annuity contract. Your lump-sum credit (discussed later) may include a deemed deposit or redeposit that is treated as being included in your lump-sum payment even though you do not actually receive such amounts. Deemed deposits and redeposits, which are described later under Lump-sum credit, are taxable to you in the year of retirement. Your taxable amount may therefore be more than the lump-sum payment you receive.
You must include the taxable part of the lump-sum payment in your income for the year you receive the payment unless you roll it over into another qualified plan or a traditional IRA. If you do not have OPM transfer the taxable amount to an IRA or other plan in a direct rollover, tax will be withheld at a 20% rate. See Rollover Rules, later, for information on how to make a rollover.
 | OPM can make a direct rollover only up to the amount of the lump-sum payment. Therefore, to defer tax on the full taxable amount if it is more than the payment, you must add funds from another source. |
The taxable part of the lump-sum payment does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. It also may be subject to an additional 10% tax on early distributions if you separate from service before the calendar year in which you reach age 55, even if you reach age 55 in the year you receive the lump-sum payment. For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575.
taxmap/pubs/p721-001.htm#en_us_publink100028919Use Worksheet B, Lump-Sum Payment (near the end of this publication), to figure the taxable part of your lump-sum payment. Be sure to keep the completed worksheet for your records.
To complete the worksheet, you will need to know the amount of your lump-sum credit and the present value of your annuity contract.
taxmap/pubs/p721-001.htm#en_us_publink100028920Generally, this is the same amount as the lump-sum payment you receive (the total of your contributions to the retirement system). However, for purposes of the alternative annuity option, your lump-sum credit also may include deemed deposits and redeposits that OPM advanced to your retirement account so that you are given credit for the service they represent. Deemed deposits (including interest) are for federal employment during which no retirement contributions were taken out of your pay. Deemed redeposits (including interest) are for any refunds of retirement contributions that you received and did not repay. You are treated as if you had received a lump-sum payment equal to the amount of your lump-sum credit and then had made a repayment to OPM of the advanced amounts.
taxmap/pubs/p721-001.htm#en_us_publink100028921The present value of your annuity contract is figured using actuarial tables provided by the IRS.
 | If you are receiving a lump-sum payment under the Alternative Annuity Option, you can write to the address below to find out the present value of your annuity contract.
Internal Revenue Service
Actuarial Group 2 SE:T:EP:RA:T:A2
1111 Constitution Ave., NW PE-4C3
Washington, DC 20224
|
taxmap/pubs/p721-001.htm#en_us_publink100028923David Brown retired from the federal government in 2008, one month after his 55th birthday. He had contributed $31,000 to his retirement plan and chose to receive a lump-sum payment of that amount under the alternative annuity option. The present value of his annuity contract was $155,000.
The tax-free part and the taxable part of the lump-sum payment are figured using Worksheet B, as shown on the next page. The taxable part ($24,800) is also his net cost in the plan, which is used to figure the taxable part of his reduced annuity payments. See
Reduced Annuity, later.
taxmap/pubs/p721-001.htm#f46713c51 Worksheet B. Lump-Sum Payment for David Brown
See the instructions in Part II of this publication under Alternative Annuity Option.
1. | Enter your lump-sum credit (your cost in the plan at the annuity starting date) | 1. | $ 31,000 |
| 2. | Enter the present value of your annuity contract | 2. | 155,000 |
| 3. | Divide line 1 by line 2 | 3. | .20 |
| 4. | Tax-free amount. Multiply line 1 by line 3. (Caution: Do not include this amount on line 6 of Worksheet A in this publication.) | 4. | $ 6,200 |
| 5. | Taxable amount (net cost in the plan). Subtract line 4 from line 1. Include this amount in the total on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Also, enter this amount on line 2 of Worksheet A in this publication. | 5. | $ 24,800 |
| |
If you choose the alternative annuity option, you usually will receive the lump-sum payment in two equal installments. You will receive the first installment after you make the choice upon retirement. The second installment will be paid to you, with interest, in the next calendar year. (Exceptions to the installment rule are provided for cases of critical medical need.)
Even though the lump-sum payment is made in installments, the overall tax treatment (explained at the beginning of this discussion) is the same as if the whole payment were paid at once. If the payment has a tax-free part, you must treat the taxable part as received first.
taxmap/pubs/p721-001.htm#en_us_publink100028925Add any actual or deemed payment of your lump-sum credit (defined earlier) to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Add the taxable part to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b, unless you roll over the taxable part to your traditional IRA or a qualified retirement plan.
If you receive the lump-sum payment in two installments, include any interest paid with the second installment on line 8a of either Form 1040 or Form 1040A, or on line 9a of Form 1040NR.
taxmap/pubs/p721-001.htm#en_us_publink100028926If you have chosen to receive a lump-sum payment under the alternative annuity option, you also will receive reduced monthly annuity payments. These annuity payments each will have a tax-free and a taxable part. To figure the tax-free part of each annuity payment, you must use the Simplified Method (Worksheet A). For instructions on how to complete the worksheet, see Worksheet A under Simplified Method, earlier.
To complete Worksheet A, line 2, you must reduce your cost in the plan by the tax-free part of the lump-sum payment you received. Enter as your net cost on line 2 the amount from Worksheet B, line 5. Do not include the tax-free part of the lump-sum payment with other amounts recovered tax free (Worksheet A, line 6) when limiting your total exclusion to your total cost.
taxmap/pubs/p721-001.htm#en_us_publink100028927The facts are the same as in the example for David Brown in the preceding discussion. In addition, David received 10 annuity payments in 2008 of $1,200 each. Using Worksheet A, he figures the taxable part of his annuity payments. He completes line 2 by reducing his $31,000 cost by the $6,200 tax-free part of his lump-sum payment. His entry on line 2 is his $24,800 net cost in the plan (the amount from Worksheet B, line 5). He does not include the tax-free part of his lump-sum payment on Worksheet A, line 6. David's filled-in Worksheet A is shown on the next page.
taxmap/pubs/p721-001.htm#w46713c52 Worksheet A. Simplified Method for David Brown See the instructions in Part II of this publication under Simplified Method.
| 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. | $ 12,000 | | 2. | Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. See Your cost in Part II, Rules for Retirees, earlier | 2. | 24,800 | | 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. | 360 | | 4. | Divide line 2 by line 3 | 4. | 68.89 | | 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, skip lines 6 and 7 and enter this amount on line 8. Otherwise, go to line 6 | 5. | 688.90 | | 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. | 0 | | 7. | Subtract line 6 from line 2 | 7. | 24,800 | | 8. | Enter the smaller of line 5 or line 7 | 8. | 688.90 | | 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, or Form 1040A, line 12b. If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. If you are a retired public safety officer, see Distributions Used To Pay Insurance Premiums for Public Safety Officers in Part II before entering an amount on your tax return or Worksheet C, line 1 | 9. | $ 11,311.10 | | 10. | Was your annuity starting date before 1987?
Yes. Do not complete the rest of this worksheet.
No. Add lines 6 and 8. This is the amount you have recovered tax free through 2008. You will need this number if you need to fill out this worksheet next year | 10. | 688.90 | | 11. | Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you will not have to complete this worksheet next year. The payments you receive next year will generally be fully taxable | 11. | $ 24,111.10 | Table 1 for Line 3 Above
| | | IF your age on your
annuity starting date was | | AND your annuity starting date was— | | | | before November 19, 1996,
THEN enter on line 3 | after November 18, 1996,
THEN enter on line 3 | | | 55 or under | 300 | 360 | | | 56–60 | 260 | 310 | | | 61–65 | 240 | 260 | | | 66–70 | 170 | 210 | | | 71 or over | 120 | 160 |
Table 2 for Line 3 Above
| | | IF the annuitants' combined ages on your annuity starting date were | | THEN enter on line 3 | | | | | | 110 or under | | 410 | | | | | | 111–120 | | 360 | | | | | | 121–130 | | 310 | | | | | | 131–140 | | 260 | | | | | | 141 or over | | 210 | | | |
* A death benefit exclusion of up to $5,000 applied to certain benefits received by survivors of employees who died before August 21, 1996.
|
| Reemployment after choosing the alternative annuity option. If you chose this option when you retired and then you were reemployed by the Federal Government before retiring again, your Form CSA 1099R may show only the amount of your contributions to your retirement plan during your reemployment. If the amount on the form does not include all your contributions, disregard it and use your total contributions to figure the taxable part of your annuity payments. |
taxmap/pubs/p721-001.htm#en_us_publink100028929If your annuity starting date is before November 19, 1996, and you chose the alternative annuity option, the taxable and tax-free parts of your lump-sum payment and your annuity payments are figured using different rules. Under those rules, you do not reduce your cost in the plan (Worksheet A, line 2) by the tax-free part of the lump-sum payment. However, you must include that tax-free amount with other amounts previously recovered tax free (Worksheet A, line 6) when limiting your total exclusion to your total cost.
taxmap/pubs/p721-001.htm#en_us_publink100028930If, through the exercise or nonexercise of an election or option, you provide an annuity for your beneficiary at or after your death, you have made a gift. The gift may be taxable for gift tax purposes. The value of the gift is equal to the value of the annuity.
taxmap/pubs/p721-001.htm#en_us_publink100028931If the gift is an interest in a joint and survivor annuity where only you and your spouse can receive payments before the death of the last spouse to die, the gift generally will qualify for the unlimited marital deduction. This will eliminate any gift tax liability with regard to that gift.
If you provide survivor annuity benefits for someone other than your current spouse, such as your former spouse, the unlimited marital deduction will not apply. This may result in a taxable gift.
taxmap/pubs/p721-001.htm#en_us_publink100028932For information about the gift tax, see Publication 950, Introduction to Estate and Gift Taxes, and Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, and its instructions.
taxmap/pubs/p721-001.htm#en_us_publink100028933If you have recently retired, the following discussions covering annual leave, voluntary contributions, and community property may apply to you.
taxmap/pubs/p721-001.htm#en_us_publink100028934A payment for accrued annual leave received on retirement is a salary payment. It is taxable as wages in the tax year you receive it.
taxmap/pubs/p721-001.htm#en_us_publink100028935Voluntary contributions to the retirement fund are those made in addition to the regular contributions that were deducted from your salary. They also include the regular contributions withheld from your salary after you have the years of service necessary for the maximum annuity allowed by law. Voluntary contributions are not the same as employee contributions to the Thrift Savings Plan. See Thrift Savings Plan, later.
taxmap/pubs/p721-001.htm#en_us_publink100028936If you choose to receive an additional annuity benefit from your voluntary contributions, it is treated separately from the annuity benefit that comes from the regular contributions deducted from your salary. This separate treatment applies for figuring the amounts to be excluded from, and included in, gross income. It does not matter that you receive only one monthly check covering both benefits. Each year you will receive a Form CSA 1099R that will show how much of your total annuity received in the past year was from each type of benefit.
Figure the taxable and tax-free parts of your additional monthly benefits from voluntary contributions using the rules that apply to regular CSRS and FERS annuities, as explained earlier.
taxmap/pubs/p721-001.htm#en_us_publink100028937If you choose to receive a refund of your voluntary contributions plus accrued interest, the interest is taxable to you in the tax year it is distributed unless you roll it over to a traditional IRA or another qualified retirement plan. If you do not have OPM transfer the interest to a traditional IRA or other qualified retirement plan in a direct rollover, tax will be withheld at a 20% rate. See Rollover Rules, later. The interest does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. It also may be subject to an additional 10% tax on early distributions if you separate from service before the calendar year in which you reach age 55. For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575.
taxmap/pubs/p721-001.htm#en_us_publink100028938State community property laws apply to your annuity. These laws will affect your income tax only if you file a return separately from your spouse.
Generally, the determination of whether your annuity is separate income (taxable to you) or community income (taxable to both you and your spouse) is based on your marital status and domicile when you were working. Regardless of whether you are now living in a community property state or a noncommunity property state, your current annuity may be community income if it is based on services you performed while married and domiciled in a community property state.
At any time, you have only one domicile even though you may have more than one home. Your domicile is your fixed and permanent legal home that you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. The question of your domicile is mainly a matter of your intentions as indicated by your actions.
If your annuity is a mixture of community income and separate income, you must divide it between the two kinds of income. The division is based on your periods of service and domicile in community and noncommunity property states while you were married.
For more information, see Publication 555, Community Property.
taxmap/pubs/p721-001.htm#en_us_publink100028939If you retired from federal service and are later rehired by the Federal Government as an employee, you can continue to receive your annuity during reemployment. The employing agency usually will pay you the difference between your salary for your period of reemployment and your annuity. This amount is taxable as wages. Your annuity will continue to be taxed just as it was before. If you are still recovering your cost, you continue to do so. If you have recovered your cost, the annuity you receive while you are reemployed generally is fully taxable.
taxmap/pubs/p721-001.htm#en_us_publink100028940The following special rules apply to nonresident alien federal employees performing services outside the United States and to nonresident alien retirees and beneficiaries. A nonresident alien is an individual who is not a citizen or a resident alien of the United States.
taxmap/pubs/p721-001.htm#en_us_publink100028941Your contributions to the retirement plan (your cost) also include the government's contributions to the plan to a certain extent. You include government contributions that would not have been taxable to you at the time they were contributed if they had been paid directly to you. For example, government contributions would not have been taxable to you if, at the time made, your services were performed outside the United States. Thus, your cost is increased by these government contributions and the benefits that you, or your beneficiary, must include in income are reduced.
This method of figuring your total contributions does not apply to any contributions the government made on your behalf after you became a citizen or a resident alien of the United States.
taxmap/pubs/p721-001.htm#en_us_publink100028942There is a limit on the taxable amount of payments received from the CSRS, the FERS, or the TSP by a nonresident alien retiree or nonresident alien beneficiary. Figure this limited taxable amount by multiplying the otherwise taxable amount by a fraction. The numerator of the fraction is the retiree's total U.S. Government basic pay, other than tax-exempt pay for services performed outside the United States. The denominator is the retiree's total U.S. Government basic pay for all services.
Basic pay includes regular pay plus any standby differential. It does not include bonuses, overtime pay, certain retroactive pay, uniform or other allowances, or lump-sum leave payments.
To figure the limited taxable amount of your CSRS or FERS annuity or your TSP distributions, use the following worksheet. (For an annuity, first complete Worksheet A in this publication.)
taxmap/pubs/p721-001.htm#w46713c55 | Worksheet C. Limited Taxable Amount
for Nonresident Alien | 1. | Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) | 1. | | | 2. | Enter the total U.S. Government basic pay other than tax-exempt pay for services performed outside the United States | 2. | | | 3. | Enter the total U.S. Government basic pay for all services | 3. | | | 4. | Divide line 2 by line 3 | 4. | | | 5. | Limited taxable amount. Multiply line 1 by line 4. Enter this amount on Form 1040NR, line 17b | 5. | |
|
taxmap/pubs/p721-001.htm#en_us_publink100028943You are a nonresident alien who performed all services for the U.S. Government abroad as a nonresident alien. You retired and began to receive a monthly annuity of $200. Your total basic pay for all services for the U.S. Government was $100,000. All of your basic pay was tax exempt because it was not U.S. source income.
The taxable amount of your annuity using Worksheet A in this publication is $720. You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows.
taxmap/pubs/p721-001.htm#w46713c60 Worksheet C. Limited Taxable Amount
for Nonresident Alien — Example 1 | 1. | Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) | 1. | $ 720 | | 2. | Enter the total U.S. Government basic pay other than tax-exempt pay for services performed outside the United States | 2. | 0 | | 3. | Enter the total U.S. Government basic pay for all services | 3. | 100,000 | | 4. | Divide line 2 by line 3 | 4. | 0 | | 5. | Limited taxable amount. Multiply line 1 by line 4. Enter this amount on Form 1040NR, line 17b | 5. | 0 |
|
taxmap/pubs/p721-001.htm#en_us_publink100028944You are a nonresident alien who performed services for the U.S. Government as a nonresident alien both within the United States and abroad. You retired and began to receive a monthly annuity of $240.
Your total basic pay for your services for the U.S. Government was $120,000; $40,000 was for work done in the United States and $80,000 was for your work done in a foreign country. The part of your total basic pay for your work done in a foreign country was tax exempt because it was not U.S. source income.
The taxable amount of your annuity figured using Worksheet A in this publication is $1,980. You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows.
taxmap/pubs/p721-001.htm#w46713c61 Worksheet C. Limited Taxable Amount
for Nonresident Alien — Example 2 | 1. | Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) | 1. | $ 1,980 | | 2. | Enter the total U.S. Government basic pay other than tax-exempt pay for services performed outside the United States | 2. | 40,000 | | 3. | Enter the total U.S. Government basic pay for all services | 3. | 120,000 | | 4. | Divide line 2 by line 3 | 4. | .333 | | 5. | Limited taxable amount. Multiply line 1 by line 4. Enter this amount on Form 1040NR, line 17b | 5. | 659 |
|
taxmap/pubs/p721-001.htm#en_us_publink100028945All of the money in your TSP account is taxed as ordinary income when you receive it. (However, see Uniformed services TSP accounts, next.) This is because neither the contributions to your TSP account nor its earnings have been included previously in your taxable income. The way that you withdraw your account balance determines when you must pay the tax.
taxmap/pubs/p721-001.htm#en_us_publink100028946If you have a uniformed services TSP account that includes contributions from combat zone pay, the distributions attributable to those contributions are tax exempt. However, any earnings on those contributions are subject to tax when they are distributed. The statement you receive from the TSP will separately state the total amount of your distribution and the amount of your taxable distribution for the year. You can get more information from the TSP website,
www.tsp.gov, or the TSP Service Office.
If you ask the TSP to transfer any part of the money in your account to a traditional IRA or other qualified retirement plan, the tax on that part is deferred until you receive payments from the traditional IRA or other plan. See Rollover Rules, later.
taxmap/pubs/p721-001.htm#en_us_publink100028948If you ask the TSP to transfer any part of the money in your account to a Roth IRA, the amount transferred will be taxed in the current year. See Rollovers to Roth IRAs, later.
taxmap/pubs/p721-001.htm#en_us_publink100028949If you ask the TSP to buy an annuity with the money in your account, the annuity payments are taxed when you receive them. The payments are not subject to the additional 10% tax on early distributions, even if you are under age 55 when they begin.
taxmap/pubs/p721-001.htm#en_us_publink100028950If you withdraw any of the money in your TSP account, it is generally taxed as ordinary income when you receive it unless you roll it over into a traditional IRA or other qualified plan. (See Rollover Rules, later.) If you receive your entire TSP account balance in a single tax year, you may be able to use the 10-year tax option to figure your tax. See Lump-Sum Distributions in Publication 575 for details.
| To qualify for the 10-year tax option, the plan participant must have been born before January 2, 1936. |
If you receive a single payment or you choose to receive your account balance in monthly payments over a period of less than 10 years, the TSP generally must withhold 20% for federal income tax. If you choose to receive your account balance in monthly payments over a period of 10 or more years or a period based on your life expectancy, the payments are subject to withholding as if you are married with three withholding allowances, unless you submit a withholding certificate. See also Withholding from Thrift Savings Plan payments earlier under Tax Withholding and Estimated Tax in Part I.
taxmap/pubs/p721-001.htm#en_us_publink100028952Any money paid to you from your TSP account before you reach age 59
1/
2 may be subject to an additional 10% tax on early distributions. However, this additional tax does not apply in certain situations, including any of the following.
- You receive the distribution and separate from government service during or after the calendar year in which you reach age 55.
- You choose to receive your account balance in monthly payments based on your life expectancy.
- You are totally and permanently disabled.
For more information, see Tax on Early Distributions in Publication 575.
taxmap/pubs/p721-001.htm#en_us_publink100028953If the TSP declares a distribution from your account because money you borrowed has not been repaid when you separate from government service, your account is reduced and the amount of the distribution (your unpaid loan balance and any unpaid interest) is taxed in the year declared. The distribution also may be subject to the additional 10% tax on early distributions. However, the tax will be deferred if you make a rollover contribution to a traditional IRA, Roth IRA, or other qualified plan equal to the declared distribution amount. See Rollover Rules, later. If you withdraw any money from your TSP account in that same year, the TSP must withhold income tax of 20% of the total of the declared distribution and the amount withdrawn.
taxmap/pubs/p721-001.htm#en_us_publink100028954For more information about the TSP, see Summary of the Thrift Savings Plan, distributed to all federal employees. Also, see Important Tax Information About Payments From Your TSP Account and Tax Treatment of TSP Payments to Nonresident Aliens and Their Beneficiaries, which are available from your agency personnel office or from the TSP.
 | The above documents are also available on the TSP website at www.tsp.gov. Select "Forms & Publications." |
taxmap/pubs/p721-001.htm#en_us_publink100028956Generally, a rollover is a tax-free withdrawal of cash or other assets from one qualified retirement plan or traditional IRA and its reinvestment in another qualified retirement plan or traditional IRA. You do not include the amount rolled over in your income, and you cannot take a deduction for it. The amount rolled over is taxed later as the new program pays that amount to you. If you roll over amounts into a traditional IRA, later distributions of these amounts from the traditional IRA do not qualify for the capital gain or the 10-year tax option. However, capital gain treatment or the 10-year tax option will be restored if the traditional IRA contains only amounts rolled over from a qualified plan and these amounts are rolled over from the traditional IRA into a qualified retirement plan.
| To qualify for the capital gain treatment or 10-year tax option, the plan participant must have been born before January 2, 1936. |
Beginning in 2008, you can also roll over a distribution from a qualified retirement plan to a Roth IRA. Although the transfer of a distribution to a Roth IRA is considered a rollover for Roth IRA purposes, it is not a tax-free transfer. See Rollovers to Roth IRAs, later, for more information.
taxmap/pubs/p721-001.htm#en_us_publink100028958For this purpose, a qualified retirement plan generally is:
- A qualified employee plan,
- A qualified employee annuity,
- A tax-sheltered annuity plan (403(b) plan), or
- An eligible state or local government section 457 deferred compensation plan.
The CSRS, FERS, and TSP are considered qualified retirement plans.
If you receive a refund of your CSRS or FERS contributions when you leave government service, you can roll over any interest you receive on the contributions. You cannot roll over any part of your CSRS or FERS annuity payments.
You can roll over a distribution of any part of your TSP account balance except:
- A distribution of your account balance that you choose to receive in monthly payments over:
- Your life expectancy,
- The joint life expectancies of you and your beneficiary, or
- A period of 10 years or more,
- A required minimum distribution generally beginning at age 701/2,
- A declared distribution because of an unrepaid loan, if you have not separated from government service (see Outstanding loan under Thrift Savings Plan, earlier), or
- A hardship distribution.
In addition, a distribution to your beneficiary generally is not treated as an eligible rollover distribution. However, see Qualified domestic relations order (QDRO) and Rollovers by surviving spouse, and Rollovers by nonspouse beneficiary, later.
taxmap/pubs/p721-001.htm#en_us_publink100028960You can choose to have the OPM or TSP transfer any part of an eligible rollover distribution directly to another qualified retirement plan that accepts rollover distributions or to a traditional IRA 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 do not make this choice, OPM will automatically roll over the distribution into an IRA of a designated trustee or issuer.
taxmap/pubs/p721-001.htm#en_us_publink100028961If 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. However, if the rollover is to a Roth IRA, you may want to choose to have tax withheld since any amount rolled over is generally included in income. Any part of the eligible rollover distribution paid to you is subject to withholding at a 20% rate.
taxmap/pubs/p721-001.htm#en_us_publink100028962If an eligible rollover distribution is paid to you, the OPM or TSP must withhold 20% for income tax even if you plan to roll over the distribution to another qualified retirement plan, traditional or Roth IRA. 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 do not roll over within 60 days to another qualified retirement plan or to a traditional IRA. Rollovers to Roth IRAs are generally included in income.
If you leave government service before the calendar year in which you reach age 55 and are under age 591/2 when a distribution is paid to you, you may have to pay an additional 10% tax on any part, including any tax withheld, that you do not roll over. See Tax on Early Distributions in Publication 575.
taxmap/pubs/p721-001.htm#en_us_publink100028963Withholding from an eligible rollover distribution paid to you is not required if the distributions for your tax year total less than $200.
taxmap/pubs/p721-001.htm#en_us_publink100028964A lump-sum distribution may qualify for capital gain treatment or the 10-year tax option if the plan participant was born before January 2, 1936. See Lump-Sum Distributions in Publication 575. However, if you roll over any part of the distribution, the part you keep does not qualify for this special tax treatment.
taxmap/pubs/p721-001.htm#en_us_publink100028965If you want to roll over more of an eligible rollover distribution than the amount you received after income tax was withheld, you will have to add funds from some other source (such as your savings or borrowed amounts).
taxmap/pubs/p721-001.htm#en_us_publink100028966You left government service at age 53. On February 1, 2009, you receive an eligible rollover distribution of $10,000 from your TSP account. The TSP 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 and add it to the $8,000 you actually received.
If you roll over only $8,000, you must include in your income the $2,000 not rolled over. Also, you may be subject to the 10% additional tax on the $2,000.
taxmap/pubs/p721-001.htm#en_us_publink100028967You 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.
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. For more information on this waiver, see Revenue Procedure 2003-16, in Internal Revenue Bulletin 2003-4. If you need to apply for a waiver, you must request a letter ruling, which requires the payment of a user fee. See Revenue Procedures 2009-4 and 2009-8 in Internal Revenue Bulletin 2009-1.
A letter ruling is not required if a financial institution receives the rollover funds during the 60-day rollover period, you follow all procedures required by the financial institution, and, solely due to an error on the part of the financial institution, the funds are not deposited into an eligible retirement account within the 60-day rollover period.
taxmap/pubs/p721-001.htm#en_us_publink100028968If 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 cannot withdraw it because of either:
- The bankruptcy or insolvency of the financial institution, or
- Any requirement imposed 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 does not end earlier than 10 days after the amount is no longer a frozen deposit.
taxmap/pubs/p721-001.htm#en_us_publink100028969You may be able to roll over tax free all or part of a distribution you receive from the CSRS, the FERS, or the TSP under a court order in a divorce or similar proceeding. You must receive the distribution as the government employee's spouse or former spouse (not as a nonspousal beneficiary). The rollover rules apply to you as if you were the employee. You can roll over the distribution if it is an eligible rollover distribution (described earlier) and it is made under a QDRO or, for the TSP, a qualifying order.
A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights. The payments must be made to a spouse, former spouse, child, or other dependent of a participant in the plan. For the TSP, a QDRO can be a qualifying order, but a domestic relations order can be a qualifying order even if it is not a QDRO. For example, a qualifying order can include an order that requires a TSP payment of attorney's fees to the attorney for the spouse, former spouse, or child of the participant.
The order must contain certain information, including the amount or percentage of the participant's benefits to be paid to each payee. It cannot require the plan to pay benefits in a form not offered by the plan, nor can it require the plan to pay increased benefits.
A distribution that is paid to a child, dependent, or, if applicable, an attorney for fees, under a QDRO or a qualifying order is taxed to the plan participant.
taxmap/pubs/p721-001.htm#en_us_publink100028970You may be able to roll over tax free all or part of the CSRS, FERS, or TSP distribution you receive as the surviving spouse of a deceased employee or retiree. The rollover rules apply to you as if you were the employee or retiree. You generally can roll over the distribution into a qualified retirement plan or an IRA. An amount rolled over to a Roth IRA is not tax free. 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.
taxmap/pubs/p721-001.htm#en_us_publink100028971You may be able to roll over tax free all or a portion of a distribution you receive from the CSRS, FERS, or TSP of a deceased employee or retiree if you are a designated beneficiary (other than a surviving spouse) of the employee or retiree. The distribution must be a direct trustee-to-trustee transfer to your 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. An amount rolled over to a Roth IRA is not tax free. See Rollovers to Roth IRAs later. For information on inherited IRAs, see Publication 590.
taxmap/pubs/p721-001.htm#en_us_publink100028972On your Form 1040, report the total distributions from the CSRS, FERS, or TSP on line 16a. Report the taxable amount of the distributions (total distribution less the amount rolled over) on line 16b. If you file Form 1040A, report the total distributions on line 12a and the taxable amount on line 12b. If you file Form 1040NR, report the total distributions on line 17a and the taxable amount on line 17b. Also, write "Rollover" next to line 16b, 12b, or 17b, whichever is applicable.
If the rollover was made to a Roth IRA, see Rollovers to Roth IRAs later for reporting the rollover on your return.
taxmap/pubs/p721-001.htm#en_us_publink100028973The TSP or OPM must provide a written explanation to you within a reasonable period of time before making an eligible rollover distribution to you. 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 IRA.
- The requirement to withhold tax from the distribution if it is not 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.
Rollovers to Roth IRAs are not tax free and are included in income. See Rollovers to Roth IRAs later.
taxmap/pubs/p721-001.htm#en_us_publink100028974The TSP or OPM 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 the TSP or OPM make a distribution less than 30 days after the explanation is provided, as long as the following two requirements are met.
- You 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 clearly states that you have the right to have 30 days to make a decision.
Contact the TSP or OPM if you have any questions about this information.
Beginning in 2008, you can roll over distributions directly from the CSRS, FERS, and TSP to a Roth IRA if, for the tax year of the distribution, both of the following requirements are met.
- Your modified adjusted gross income for Roth IRA purposes (explained in chapter 2 of Publication 590) is not more than $100,000.
- You are not a married individual filing a separate return.
You must include in your gross income distributions from the CSRS, FERS, and TSP that you would have had to include in income if you had not rolled them over into a Roth IRA. You do not include in gross income any part of a distribution that is a return of contributions that were taxable to you when paid. In addition, the 10% tax on early distributions does not apply.
Any amount rolled over to 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 Traditional IRA Into a Roth IRA in chapter 1 of Publication 590.
taxmap/pubs/p721-001.htm#en_us_publink100038663A rollover to a Roth IRA is not a tax-free distribution other than any after-tax contributions you made. Report a rollover from a qualified retirement plan to a Roth IRA on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b.
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 is 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.
taxmap/pubs/p721-001.htm#en_us_publink100028976Table 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 | Result of a Payment to You | Result of a Direct Rollover |
| Withholding | The payer must withhold 20% of the taxable part. | There is no withholding. However, you may want to choose withholding on a rollover to a Roth IRA. |
| Additional tax | If you are under age 591/2, a 10% additional tax may apply to the taxable part (including an amount equal to the tax withheld) that is not rolled over. | There is no 10% additional tax. See Tax on early distributions, earlier. |
When to report
as income | Any taxable part (including the taxable part of any amount withheld) not rolled over is income to you in the year paid. | Any taxable part is not income to you until later distributed to you from the new plan or IRA. However, see Rollovers to Roth IRAs, earlier, for an exception. |
taxmap/pubs/p721-001.htm#en_us_publink100028977If 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 an 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 cannot be used to claim a medical expense deduction.
For this purpose, an eligible retirement plan is a governmental plan that is:
- A qualified trust,
- A section 403(a) plan,
- A section 403(b) annuity, or
- A section 457(b) plan.
The CSRS and FERS are considered eligible retirement plans.
If you make this election, reduce the otherwise taxable amount of your annuity by the amount excluded. The taxable annuity shown on Form CSA 1099R does not 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.
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.
taxmap/pubs/p721-001.htm#en_us_publink100028979If you received annuity benefits that are not fully taxable, report the total received for the year on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Also, include on that line the total of any other pension plan payments (even if fully taxable, such as those from the TSP) that you received during the year in addition to the annuity. Report the taxable amount of these total benefits on line 16b (Form 1040), line 12b (Form 1040A), or line 17b (Form 1040NR). If you use Form 4972, Tax on Lump-Sum Distributions, however, to report the tax on any amount, do not include that amount on lines 16a and 16b, lines 12a and 12b, or lines 17a or 17b, follow the Form 4972 instructions.
If you received only fully taxable payments from your retirement, the TSP, or other pension plan, report on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b, the total received for the year (except for any amount reported on Form 4972); no entry is required on line 16a (Form 1040), line 12a (Form 1040A), or line 17a (Form 1040NR).
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