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Free E File 2012

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Free E File 2012

Free e file 2012 3. Free e file 2012   Reporting Rental Income, Expenses, and Losses Table of Contents Which Forms To UseSchedule E (Form 1040) Schedule C (Form 1040), Profit or Loss From Business Qualified Joint Venture Limits on Rental LossesAt-Risk Rules Passive Activity Limits Casualties and Thefts Example Figuring the net income or loss for a residential rental activity may involve more than just listing the income and deductions on Schedule E (Form 1040). Free e file 2012 There are activities which do not qualify to use Schedule E, such as when the activity is not engaged in to make a profit or when you provide substantial services in conjunction with the property. Free e file 2012 There are also the limitations which may need to be applied if you have a net loss on Schedule E. Free e file 2012 There are two: (1) the limitation based on the amount of investment you have at risk in your rental activity, and (2) the special limits imposed on passive activities. Free e file 2012 You may also have a gain or loss related to your rental property from a casualty or theft. Free e file 2012 This is considered separately from the income and expense information you report on Schedule E. Free e file 2012 Which Forms To Use The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Free e file 2012 However, do not use that schedule to report a not-for-profit activity. Free e file 2012 See Not Rented for Profit , in chapter 4. Free e file 2012 There are also other rental situations in which forms other than Schedule E would be used. Free e file 2012 Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Free e file 2012 , you normally report your rental income and expenses on Schedule E, Part I. Free e file 2012 List your total income, expenses, and depreciation for each rental property. Free e file 2012 Be sure to enter the number of fair rental and personal use days on line 2. Free e file 2012 If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Free e file 2012 Complete lines 1 and 2 for each property. Free e file 2012 However, fill in lines 23a through 26 on only one Schedule E. Free e file 2012 On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Free e file 2012 To find out if you need to attach Form 4562, see Form 4562 , later. Free e file 2012 If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Free e file 2012 Form 6198, At-Risk Limitations. Free e file 2012 See At-Risk Rules , later. Free e file 2012 Also see Publication 925. Free e file 2012 Form 8582, Passive Activity Loss Limitations. Free e file 2012 See Passive Activity Limits , later. Free e file 2012 Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Free e file 2012 If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. Free e file 2012 Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Free e file 2012 Form 4562. Free e file 2012   You must complete and attach Form 4562 for rental activities only if you are claiming: Depreciation, including the special depreciation allowance, on property placed in service during 2013; Depreciation on listed property (such as a car), regardless of when it was placed in service; or Any other car expenses, including the standard mileage rate or lease expenses. Free e file 2012 Otherwise, figure your depreciation on your own worksheet. Free e file 2012 You do not have to attach these computations to your return, but you should keep them in your records for future reference. Free e file 2012   See Publication 946 for information on preparing Form 4562. Free e file 2012 Schedule C (Form 1040), Profit or Loss From Business Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer. Free e file 2012 Providing substantial services. Free e file 2012   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Free e file 2012 Use Form 1065, U. Free e file 2012 S. Free e file 2012 Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Free e file 2012 Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Free e file 2012 For information, see Publication 334, Tax Guide for Small Business. Free e file 2012 Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Free e file 2012 For a discussion of “substantial services,” see Real Estate Rents in Publication 334, chapter 5. Free e file 2012 Qualified Joint Venture If you and your spouse each materially participate (see Material participation under Passive Activity Limits, later) as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Free e file 2012 This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. Free e file 2012 If you make this election, you must report rental real estate income on Schedule E (or Schedule C if you provide substantial services). Free e file 2012 You will not be required to file Form 1065 for any year the election is in effect. Free e file 2012 Rental real estate income generally is not included in net earnings from self-employment subject to self-employment tax and generally is subject to the passive activity limits. Free e file 2012 If you and your spouse filed a Form 1065 for the year prior to the election, the partnership terminates at the end of the tax year immediately preceding the year the election takes effect. Free e file 2012 For more information on qualified joint ventures, go to IRS. Free e file 2012 gov and enter “qualified joint venture” in the search box. Free e file 2012 Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. Free e file 2012 You must consider these rules in the order shown below. Free e file 2012 Both are discussed in this section. Free e file 2012 At-risk rules. Free e file 2012 These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Free e file 2012 This applies only if the real property was placed in service after 1986. Free e file 2012 Passive activity limits. Free e file 2012 Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. Free e file 2012 However, there are exceptions. Free e file 2012 At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. Free e file 2012 Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Free e file 2012 In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. Free e file 2012 You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. Free e file 2012 Any loss that is disallowed because of the at-risk limits is treated as a deduction from the same activity in the next tax year. Free e file 2012 See Publication 925 for a discussion of the at-risk rules. Free e file 2012 Form 6198. Free e file 2012   If you are subject to the at-risk rules, file Form 6198, At-Risk Limitations, with your tax return. Free e file 2012 Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Free e file 2012 For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. Free e file 2012 For a discussion of activities that are not considered rental activities, see Rental Activities in Publication 925. Free e file 2012 Deductions or losses from passive activities are limited. Free e file 2012 You generally cannot offset income, other than passive income, with losses from passive activities. Free e file 2012 Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Free e file 2012 Any excess loss or credit is carried forward to the next tax year. Free e file 2012 Exceptions to the rules for figuring passive activity limits for personal use of a dwelling unit and for rental real estate with active participation are discussed later. Free e file 2012 For a detailed discussion of these rules, see Publication 925. Free e file 2012 Real estate professionals. Free e file 2012   If you are a real estate professional, complete line 43 of Schedule E. Free e file 2012      You qualify as a real estate professional for the tax year if you meet both of the following requirements. Free e file 2012 More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate. Free e file 2012 You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. Free e file 2012 If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. Free e file 2012 For purposes of determining whether you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity unless you elect to treat all your interests in rental real estate as one activity. Free e file 2012   Do not count personal services you perform as an employee in real property trades or businesses unless you are a 5% owner of your employer. Free e file 2012 You are a 5% owner if you own (or are considered to own) more than 5% of your employer's outstanding stock, or capital or profits interest. Free e file 2012   Do not count your spouse's personal services to determine whether you met the requirements listed earlier to qualify as a real estate professional. Free e file 2012 However, you can count your spouse's participation in an activity in determining if you materially participated. Free e file 2012 Real property trades or businesses. Free e file 2012   A real property trade or business is a trade or business that does any of the following with real property. Free e file 2012 Develops or redevelops it. Free e file 2012 Constructs or reconstructs it. Free e file 2012 Acquires it. Free e file 2012 Converts it. Free e file 2012 Rents or leases it. Free e file 2012 Operates or manages it. Free e file 2012 Brokers it. Free e file 2012 Choice to treat all interests as one activity. Free e file 2012   If you were a real estate professional and had more than one rental real estate interest during the year, you can choose to treat all the interests as one activity. Free e file 2012 You can make this choice for any year that you qualify as a real estate professional. Free e file 2012 If you forgo making the choice for one year, you can still make it for a later year. Free e file 2012   If you make the choice, it is binding for the tax year you make it and for any later year that you are a real estate professional. Free e file 2012 This is true even if you are not a real estate professional in any intervening year. Free e file 2012 (For that year, the exception for real estate professionals will not apply in determining whether your activity is subject to the passive activity rules. Free e file 2012 )   See the Instructions for Schedule E for information about making this choice. Free e file 2012 Material participation. Free e file 2012   Generally, you materially participated in an activity for the tax year if you were involved in its operations on a regular, continuous, and substantial basis during the year. Free e file 2012 For details, see Publication 925 or the Instructions for Schedule C. Free e file 2012 Participating spouse. Free e file 2012   If you are married, determine whether you materially participated in an activity by also counting any participation in the activity by your spouse during the year. Free e file 2012 Do this even if your spouse owns no interest in the activity or files a separate return for the year. Free e file 2012 Form 8582. Free e file 2012    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. Free e file 2012 See Form 8582 not required , later in this chapter, to determine if you must complete Form 8582. Free e file 2012   If you are required to complete Form 8582 and are also subject to the at-risk rules, include the amount from Form 6198, line 21 (deductible loss) in column (b) of Form 8582, Worksheet 1 or 3, as required. Free e file 2012 Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. Free e file 2012 Instead, follow the rules explained in chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Free e file 2012 Exception for Rental Real Estate With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. Free e file 2012 This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Free e file 2012 Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. Free e file 2012 Example. Free e file 2012 Jane is single and has $40,000 in wages, $2,000 of passive income from a limited partnership, and $3,500 of passive loss from a rental real estate activity in which she actively participated. Free e file 2012 $2,000 of Jane's $3,500 loss offsets her passive income. Free e file 2012 The remaining $1,500 loss can be deducted from her $40,000 wages. Free e file 2012 The special allowance is not available if you were married, lived with your spouse at any time during the year, and are filing a separate return. Free e file 2012 Active participation. Free e file 2012   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Free e file 2012 Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions. Free e file 2012 Example. Free e file 2012 Mike is single and had the following income and losses during the tax year:   Salary $42,300     Dividends 300     Interest 1,400     Rental loss (4,000)   The rental loss was from the rental of a house Mike owned. Free e file 2012 Mike had advertised and rented the house to the current tenant himself. Free e file 2012 He also collected the rents, which usually came by mail. Free e file 2012 All repairs were either made or contracted out by Mike. Free e file 2012 Although the rental loss is from a passive activity, because Mike actively participated in the rental property management he can use the entire $4,000 loss to offset his other income. Free e file 2012 Maximum special allowance. Free e file 2012   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. Free e file 2012   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. Free e file 2012 If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Free e file 2012   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Free e file 2012 Modified adjusted gross income (MAGI). Free e file 2012   This is your adjusted gross income from Form 1040, U. Free e file 2012 S. Free e file 2012 Individual Income Tax Return, line 38, or Form 1040NR, U. Free e file 2012 S. Free e file 2012 Nonresident Alien Income Tax Return, line 37, figured without taking into account: The taxable amount of social security or equivalent tier 1 railroad retirement benefits, The deductible contributions to traditional individual retirement accounts (IRAs) and section 501(c)(18) pension plans, The exclusion from income of interest from Series EE and I U. Free e file 2012 S. Free e file 2012 savings bonds used to pay higher educational expenses, The exclusion of amounts received under an employer's adoption assistance program, Any passive activity income or loss included on Form 8582, Any rental real estate loss allowed to real estate professionals, Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the Instructions for Form 8582), The deduction allowed for one-half of self-employment tax, The deduction allowed for interest paid on student loans, The deduction for qualified tuition and related fees, and The domestic production activities deduction (see the Instructions for Form 8903). Free e file 2012 Form 8582 not required. Free e file 2012   Do not complete Form 8582 if you meet all of the following conditions. Free e file 2012 Your only passive activities were rental real estate activities in which you actively participated. Free e file 2012 Your overall net loss from these activities is $25,000 or less ($12,500 or less if married filing separately and you lived apart from your spouse all year). Free e file 2012 If married filing separately, you lived apart from your spouse all year. Free e file 2012 You have no prior year unallowed losses from these (or any other passive) activities. Free e file 2012 You have no current or prior year unallowed credits from passive activities. Free e file 2012 Your MAGI is $100,000 or less ($50,000 or less if married filing separately and you lived apart from your spouse all year). Free e file 2012 You do not hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or a trust. Free e file 2012   If you meet all of the conditions listed above, your rental real estate activities are not limited by the passive activity rules and you do not have to complete Form 8582. Free e file 2012 On lines 23a through 23e of your Schedule E, enter the applicable amounts. Free e file 2012 Casualties and Thefts As a result of a casualty or theft, you may have a loss related to your rental property. Free e file 2012 You may be able to deduct the loss on your income tax return. Free e file 2012 Casualty. Free e file 2012   This is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Free e file 2012 Such events include a storm, fire, or earthquake. Free e file 2012 Theft. Free e file 2012   This is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it. Free e file 2012 Gain from casualty or theft. Free e file 2012   It is also possible to have a gain from a casualty or theft if you receive money, including insurance, that is more than your adjusted basis in the property. Free e file 2012 Generally, you must report this gain. Free e file 2012 However, under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. Free e file 2012 To do this, you generally must buy replacement property within 2 years after the close of the first tax year in which any part of your gain is realized. Free e file 2012 In certain circumstances, the replacement period can be greater than 2 years; see Replacement Period in Publication 547 for more information. Free e file 2012 The cost of the replacement property must be equal to or more than the net insurance or other payment you received. Free e file 2012 More information. Free e file 2012   For information on business and nonbusiness casualty and theft losses, see Publication 547. Free e file 2012 How to report. Free e file 2012    If you had a casualty or theft that involved property used in your rental activity, figure the net gain or loss in Section B of Form 4684, Casualties and Thefts. Free e file 2012 Follow the Instructions for Form 4684 for where to carry your net gain or loss. Free e file 2012 Example In February 2008, Marie Pfister bought a rental house for $135,000 (house $120,000 and land $15,000) and immediately began renting it out. Free e file 2012 In 2013, she rented it all 12 months for a monthly rental fee of $1,125. Free e file 2012 In addition to her rental income of $13,500 (12 x $1,125), Marie had the following expenses. Free e file 2012 Mortgage interest $8,000 Fire insurance (1-year policy) 250 Miscellaneous repairs 400 Real estate taxes imposed and paid 500 Maintenance 200 Marie depreciates the residential rental property under MACRS GDS. Free e file 2012 This means using the straight line method over a recovery period of 27. Free e file 2012 5 years. Free e file 2012 She uses Table 2-2d to find her depreciation percentage. Free e file 2012 Because she placed the property in service in February 2008, she continues to use that row of Table 2-2d. Free e file 2012 For year 6, the rate is 3. Free e file 2012 636%. Free e file 2012 Marie figures her net rental income or loss for the house as follows: Total rental income received  ($1,125 × 12) $13,500 Minus: Expenses     Mortgage interest $8,000   Fire insurance 250   Miscellaneous repairs 400   Real estate taxes 500   Maintenance 200   Total expenses 9,350 Balance $4,150 Minus: Depreciation ($120,000 x 3. Free e file 2012 636%) 4,363 Net rental (loss) for house ($213)       Marie had a net loss for the year. Free e file 2012 Because she actively participated in her passive rental real estate activity and her loss was less than $25,000, she can deduct the loss on her return. Free e file 2012 Marie also meets all of the requirements for not having to file Form 8582. Free e file 2012 She uses Schedule E, Part I, to report her rental income and expenses. Free e file 2012 She enters her income, expenses, and depreciation for the house in the column for Property A and enters her loss on line 22. Free e file 2012 Form 4562 is not required. Free e file 2012 Prev  Up  Next   Home   More Online Publications
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The Free E File 2012

Free e file 2012 10. Free e file 2012   Retirement Plans, Pensions, and Annuities Table of Contents What's New Reminder IntroductionThe General Rule. Free e file 2012 Individual retirement arrangements (IRAs). Free e file 2012 Civil service retirement benefits. Free e file 2012 Useful Items - You may want to see: General InformationIn-plan rollovers to designated Roth accounts. Free e file 2012 How To Report Cost (Investment in the Contract) Taxation of Periodic PaymentsExclusion limited to cost. Free e file 2012 Exclusion not limited to cost. Free e file 2012 Simplified Method Taxation of Nonperiodic PaymentsLump-Sum Distributions RolloversIn-plan rollovers to designated Roth accounts. Free e file 2012 Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and Beneficiaries What's New For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). Free e file 2012 However, these distributions are taken into account when determining the modified adjusted gross income threshold. Free e file 2012 Distributions from a nonqualified retirement plan are included in net investment income. Free e file 2012 See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Free e file 2012 Reminder Starting in 2013, the American Taxpayer Relief Act of 2012 expanded the rules for in-plan Roth rollovers to include more taxpayers. Free e file 2012 For more information, see Designated Roth accounts discussed later. Free e file 2012 Introduction This chapter discusses the tax treatment of distributions you receive from: An employee pension or annuity from a qualified plan, A disability retirement, and A purchased commercial annuity. Free e file 2012 What is not covered in this chapter. Free e file 2012   The following topics are not discussed in this chapter. Free e file 2012 The General Rule. Free e file 2012   This is the method generally used to determine the tax treatment of pension and annuity income from nonqualified plans (including commercial annuities). Free e file 2012 For a qualified plan, you generally cannot use the General Rule unless your annuity starting date is before November 19, 1996. Free e file 2012 For more information about the General Rule, see Publication 939, General Rule for Pensions and Annuities. Free e file 2012 Individual retirement arrangements (IRAs). Free e file 2012   Information on the tax treatment of amounts you receive from an IRA is in chapter 17. Free e file 2012 Civil service retirement benefits. Free e file 2012    If you are retired from the federal government (regular, phased, or disability retirement), see Publication 721, Tax Guide to U. Free e file 2012 S. Free e file 2012 Civil Service Retirement Benefits. Free e file 2012 Publication 721 also covers the information that you need if you are the survivor or beneficiary of a federal employee or retiree who died. Free e file 2012 Useful Items - You may want to see: Publication 575 Pension and Annuity Income 721 Tax Guide to U. Free e file 2012 S. Free e file 2012 Civil Service 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. Free e file 2012 4972 Tax on Lump-Sum Distributions 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts General Information Designated Roth accounts. Free e file 2012   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. Free e file 2012 Elective deferrals that are designated as Roth contributions are included in your income. Free e file 2012 However, qualified distributions are not included in your income. Free e file 2012 See Publication 575 for more information. Free e file 2012 In-plan rollovers to designated Roth accounts. Free e file 2012   If you are a 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. Free e file 2012 The rollover of any untaxed amounts must be included in income. Free e file 2012 See Publication 575 for more information. Free e file 2012 More than one program. Free e file 2012   If you receive benefits from more than one program under a single trust or plan of your employer, such as a pension plan and a profit-sharing plan, you may have to figure the taxable part of each pension or annuity contract separately. Free e file 2012 Your former employer or the plan administrator should be able to tell you if you have more than one pension or annuity contract. Free e file 2012 Section 457 deferred compensation plans. Free e file 2012    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. Free e file 2012 If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. Free e file 2012 You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. Free e file 2012 You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. Free e file 2012   Your 457(b) plan may have a designated Roth account option. Free e file 2012 If so, you may be able to roll over amounts to the designated Roth account or make contributions. Free e file 2012 Elective deferrals to a designated Roth account are included in your income. Free e file 2012 Qualified distributions from a designated Roth account are not subject to tax. Free e file 2012   This chapter covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. Free e file 2012 For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525, Taxable and Nontaxable Income. Free e file 2012   For general information on these deferred compensation plans, see Section 457 Deferred Compensation Plans in Publication 575. Free e file 2012 Disability pensions. Free e file 2012   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. Free e file 2012 You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A until you reach minimum retirement age. Free e file 2012 Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Free e file 2012    You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Free e file 2012 For information on the credit for the elderly or the disabled, see chapter 33. Free e file 2012   Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Free e file 2012 Report the payments on Form 1040, lines 16a and 16b, or on Form 1040A, lines 12a and 12b. Free e file 2012    Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. Free e file 2012 For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Free e file 2012   For more information on how to report disability pensions, including military and certain government disability pensions, see chapter 5. Free e file 2012 Retired public safety officers. Free e file 2012   An eligible retired public safety officer can elect to exclude from income distributions of up to $3,000 made directly from a government retirement plan to the provider of accident, health, or long-term disability insurance. Free e file 2012 See Insurance Premiums for Retired Public Safety Officers in Publication 575 for more information. Free e file 2012 Railroad retirement benefits. Free e file 2012   Part of any railroad retirement benefits you receive is treated for tax purposes as social security benefits, and part is treated as an employee pension. Free e file 2012 For information about railroad retirement benefits treated as social security benefits, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Free e file 2012 For information about railroad retirement benefits treated as an employee pension, see Railroad Retirement Benefits in Publication 575. Free e file 2012 Withholding and estimated tax. Free e file 2012   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable parts of amounts paid to you. Free e file 2012 You can tell the payer how much to withhold, or not to withhold, by filing Form W-4P. Free e file 2012 If you choose not to have tax withheld, or you do not have enough tax withheld, you may have to pay estimated tax. Free e file 2012   If you receive an eligible rollover distribution, you cannot choose not to have tax withheld. Free e file 2012 Generally, 20% will be withheld, but no tax will be withheld on a direct rollover of an eligible rollover distribution. Free e file 2012 See Direct rollover option under Rollovers, later. Free e file 2012   For more information, see Pensions and Annuities under Tax Withholding for 2014 in chapter 4. Free e file 2012 Qualified plans for self-employed individuals. Free e file 2012   Qualified plans set up by self-employed individuals are sometimes called Keogh or H. Free e file 2012 R. Free e file 2012 10 plans. Free e file 2012 Qualified plans can be set up by sole proprietors, partnerships (but not a partner), and corporations. Free e file 2012 They can cover self-employed persons, such as the sole proprietor or partners, as well as regular (common-law) employees. Free e file 2012    Distributions from a qualified plan are usually fully taxable because most recipients have no cost basis. Free e file 2012 If you have an investment (cost) in the plan, however, your pension or annuity payments from a qualified plan are taxed under the Simplified Method. Free e file 2012 For more information about qualified plans, see Publication 560, Retirement Plans for Small Business. Free e file 2012 Purchased annuities. Free e file 2012   If you receive pension or annuity payments from a privately purchased annuity contract from a commercial organization, such as an insurance company, you generally must use the General Rule to figure the tax-free part of each annuity payment. Free e file 2012 For more information about the General Rule, get Publication 939. Free e file 2012 Also, see Variable Annuities in Publication 575 for the special provisions that apply to these annuity contracts. Free e file 2012 Loans. Free e file 2012   If you borrow money from your retirement plan, you must treat the loan as a nonperiodic distribution from the plan unless certain exceptions apply. Free e file 2012 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. Free e file 2012 This means that you must include in income all or part of the amount borrowed. Free e file 2012 Even if you do not have to treat the loan as a nonperiodic distribution, you may not be able to deduct the interest on the loan in some situations. Free e file 2012 For details, see Loans Treated as Distributions in Publication 575. Free e file 2012 For information on the deductibility of interest, see chapter 23. Free e file 2012 Tax-free exchange. Free e file 2012   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. Free e file 2012 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. Free e file 2012 See Transfers of Annuity Contracts in Publication 575 for more information about exchanges of annuity contracts. Free e file 2012 How To Report If you file Form 1040, report your total annuity on line 16a and the taxable part on line 16b. Free e file 2012 If your pension or annuity is fully taxable, enter it on line 16b; do not make an entry on line 16a. Free e file 2012 If you file Form 1040A, report your total annuity on line 12a and the taxable part on line 12b. Free e file 2012 If your pension or annuity is fully taxable, enter it on line 12b; do not make an entry on line 12a. Free e file 2012 More than one annuity. Free e file 2012   If you receive more than one annuity and at least one of them is not fully taxable, enter the total amount received from all annuities on Form 1040, line 16a, or Form 1040A, line 12a, and enter the taxable part on Form 1040, line 16b, or Form 1040A, line 12b. Free e file 2012 If all the annuities you receive are fully taxable, enter the total of all of them on Form 1040, line 16b, or Form 1040A, line 12b. Free e file 2012 Joint return. Free e file 2012   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on Form 1040, line 16a, or Form 1040A, line 12a, and report the taxable part on Form 1040, line 16b, or Form 1040A, line 12b. Free e file 2012 Cost (Investment in the Contract) Before you can figure how much, if any, of a distribution from your pension or annuity plan is taxable, you must determine your cost (your investment in the contract) in the pension or annuity. Free e file 2012 Your total cost in the plan includes the total premiums, contributions, or other amounts you paid. Free e file 2012 This includes the amounts your employer contributed that were taxable to you when paid. Free e file 2012 Cost does not include any amounts you deducted or were excluded from your income. Free e file 2012 From this total cost, subtract any refunds of premiums, rebates, dividends, unrepaid loans that were not included in your income, or other tax-free amounts that you received by the later of the annuity starting date or the date on which you received your first payment. Free e file 2012 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. Free e file 2012 Designated Roth accounts. Free e file 2012   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. Free e file 2012 Your cost will also include any in-plan Roth rollovers you included in income. Free e file 2012 Foreign employment contributions. Free e file 2012   If you worked in a foreign country and contributions were made to your retirement plan, special rules apply in determining your cost. Free e file 2012 See Foreign employment contributions under Cost (Investment in the Contract) in Publication 575. Free e file 2012 Taxation of Periodic Payments Fully taxable payments. Free e file 2012   Generally, if you did not pay any part of the cost of your employee pension or annuity and your employer did not withhold part of the cost from your pay while you worked, the amounts you receive each year are fully taxable. Free e file 2012 You must report them on your income tax return. Free e file 2012 Partly taxable payments. Free e file 2012   If you paid part of the cost of your pension or annuity, you are not taxed on the part of the pension or annuity you receive that represents a return of your cost. Free e file 2012 The rest of the amount you receive is generally taxable. Free e file 2012 You figure the tax-free part of the payment using either the Simplified Method or the General Rule. Free e file 2012 Your annuity starting date and whether or not your plan is qualified determine which method you must or may use. Free e file 2012   If your annuity starting date is after November 18, 1996, and your payments are from a qualified plan, you must use the Simplified Method. Free e file 2012 Generally, you must use the General Rule if your annuity is paid under a nonqualified plan, and you cannot use this method if your annuity is paid under a qualified plan. Free e file 2012   If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. Free e file 2012   If your annuity is paid under a qualified plan and 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. Free e file 2012 Exclusion limit. Free e file 2012   Your annuity starting date determines the total amount of annuity payments that you can exclude from your taxable income over the years. Free e file 2012 Once your annuity starting date is determined, it does not change. Free e file 2012 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. Free e file 2012 That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. Free e file 2012 Exclusion limited to cost. Free e file 2012   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 cannot exceed your total cost. Free e file 2012 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. Free e file 2012 This deduction is not subject to the 2%-of-adjusted-gross-income limit. Free e file 2012 Exclusion not limited to cost. Free e file 2012   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Free e file 2012 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. Free e file 2012 The total exclusion may be more than your cost. Free e file 2012 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. Free e file 2012 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. Free e file 2012 For any other annuity, this number is the number of monthly annuity payments under the contract. Free e file 2012 Who must use the Simplified Method. Free e file 2012   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you both: Receive pension or annuity payments from a qualified employee plan, qualified employee annuity, or a tax-sheltered annuity (403(b)) plan, and On your annuity starting date, you were either under age 75, or entitled to less than 5 years of guaranteed payments. Free e file 2012 Guaranteed payments. Free e file 2012   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 do not live to receive the minimum. Free e file 2012 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. Free e file 2012 How to use the Simplified Method. Free e file 2012    Complete the Simplified Method Worksheet in Publication 575 to figure your taxable annuity for 2013. Free e file 2012 Single-life annuity. Free e file 2012    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. Free e file 2012 Enter on line 3 the number shown for your age at the annuity starting date. Free e file 2012 Multiple-lives annuity. Free e file 2012   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. Free e file 2012 Enter on line 3 the number shown for the combined ages of you and the youngest survivor annuitant at the annuity starting date. Free e file 2012   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Free e file 2012 Instead you must use Table 1 and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Free e file 2012    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity next year. Free e file 2012 Example. Free e file 2012 Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. Free e file 2012 Bill's annuity starting date is January 1, 2013. Free e file 2012 The benefits are to be paid for the joint lives of Bill and his wife Kathy, age 65. Free e file 2012 Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Free e file 2012 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. Free e file 2012 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. Free e file 2012 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 the worksheet in completing line 3 of the worksheet. Free e file 2012 His completed worksheet is shown in Worksheet 10-A. Free e file 2012 Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Free e file 2012 Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Free e file 2012 The full amount of any annuity payments received after 310 payments are paid must be included in gross income. Free e file 2012 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. Free e file 2012 This deduction is not subject to the 2%-of-adjusted- gross-income limit. Free e file 2012 Worksheet 10-A. Free e file 2012 Simplified Method Worksheet for Bill Smith 1. Free e file 2012 Enter the total pension or annuity payments received this year. Free e file 2012 Also, add this amount to the total for Form 1040, line 16a, or Form 1040A, line 12a 1. Free e file 2012 14,400 2. Free e file 2012 Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion*. Free e file 2012 See Cost (Investment in the Contract) , earlier 2. Free e file 2012 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). Free e file 2012 Otherwise, go to line 3. Free e file 2012         3. Free e file 2012 Enter the appropriate number from Table 1 below. Free e file 2012 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. Free e file 2012 310     4. Free e file 2012 Divide line 2 by the number on line 3 4. Free e file 2012 100     5. Free e file 2012 Multiply line 4 by the number of months for which this year's payments were made. Free e file 2012 If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Free e file 2012 Otherwise, go to line 6 5. Free e file 2012 1,200     6. Free e file 2012 Enter any amounts previously recovered tax free in years after 1986. Free e file 2012 This is the amount shown on line 10 of your worksheet for last year 6. Free e file 2012 -0-     7. Free e file 2012 Subtract line 6 from line 2 7. Free e file 2012 31,000     8. Free e file 2012 Enter the smaller of line 5 or line 7 8. Free e file 2012 1,200 9. Free e file 2012 Taxable amount for year. Free e file 2012 Subtract line 8 from line 1. Free e file 2012 Enter the result, but not less than zero. Free e file 2012 Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b 9. Free e file 2012 13,200   Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Free e file 2012 If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers in Publication 575 before entering an amount on your tax return. Free e file 2012     10. Free e file 2012 Was your annuity starting date before 1987? □ Yes. Free e file 2012 STOP. Free e file 2012 Do not complete the rest of this worksheet. Free e file 2012  ☑ No. Free e file 2012 Add lines 6 and 8. Free e file 2012 This is the amount you have recovered tax free through 2013. Free e file 2012 You will need this number if you need to fill out this worksheet next year 10. Free e file 2012 1,200 11. Free e file 2012 Balance of cost to be recovered. Free e file 2012 Subtract line 10 from line 2. Free e file 2012 If zero, you will not have to complete this worksheet next year. Free e file 2012 The payments you receive next year will generally be fully taxable 11. Free e file 2012 29,800 TABLE 1 FOR LINE 3 ABOVE   AND your annuity starting date was— IF the age at annuity starting date was. Free e file 2012 . Free e file 2012 . Free e file 2012 before November 19, 1996, enter on line 3. Free e file 2012 . Free e file 2012 . Free e file 2012 after November 18, 1996, enter on line 3. Free e file 2012 . Free e file 2012 . Free e file 2012 55 or under 300 360 56–60 260 310 61–65 240 260 66–70 170 210 71 or older 120 160 TABLE 2 FOR LINE 3 ABOVE IF the combined ages at annuity starting date were. Free e file 2012 . Free e file 2012 . Free e file 2012   THEN enter on line 3. Free e file 2012 . Free e file 2012 . Free e file 2012 110 or under   410 111–120   360 121–130   310 131–140   260 141 or older   210 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Free e file 2012 Who must use the General Rule. Free e file 2012   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. Free e file 2012 Annuity starting before November 19, 1996. Free e file 2012   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. Free e file 2012 You also had to use it for any fixed-period annuity. Free e file 2012 If you did not have to use the General Rule, you could have chosen to use it. Free e file 2012 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. Free e file 2012   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. Free e file 2012 Who cannot use the General Rule. Free e file 2012   You cannot 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. Free e file 2012 See Who must use the Simplified Method , earlier. Free e file 2012 More information. Free e file 2012   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. Free e file 2012 Taxation of Nonperiodic Payments Nonperiodic distributions are also known as amounts not received as an annuity. Free e file 2012 They include all payments other than periodic payments and corrective distributions. Free e file 2012 Examples of nonperiodic payments are cash withdrawals, distributions of current earnings, certain loans, and the value of annuity contracts transferred without full and adequate consideration. Free e file 2012 Corrective distributions of excess plan contributions. Free e file 2012   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. Free e file 2012 To correct an excess, your plan may distribute it to you (along with any income earned on the excess). Free e file 2012 For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. Free e file 2012 Figuring the taxable amount of nonperiodic payments. Free e file 2012   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. Free e file 2012 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. Free e file 2012 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. Free e file 2012 Annuity starting date. Free e file 2012   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. Free e file 2012 Distribution on or after annuity starting date. Free e file 2012   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. Free e file 2012 Distribution before annuity starting date. Free e file 2012   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. Free e file 2012 You exclude from your gross income the part that you allocate to the cost. Free e file 2012 You include the remainder in your gross income. Free e file 2012   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). Free e file 2012 This allocation rule applies, for example, to a commercial annuity contract you bought directly from the issuer. Free e file 2012    Distributions from nonqualified plans are subject to the net investment income tax. Free e file 2012 See the Instructions for Form 8960. Free e file 2012   For more information, see Figuring the Taxable Amount under Taxation of Nonperiodic Payments in Publication 575. Free e file 2012 Lump-Sum Distributions This section on lump-sum distributions only applies if the plan participant was born before January 2, 1936. Free e file 2012 If the plan participant was born after January 1, 1936, the taxable amount of this nonperiodic payment is reported as discussed earlier. Free e file 2012 A lump-sum distribution is the distribution or payment in one 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). Free e file 2012 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) cannot qualify as a lump-sum distribution. Free e file 2012 The participant's entire balance from a plan does not include certain forfeited amounts. Free e file 2012 It also does not include any deductible voluntary employee contributions allowed by the plan after 1981 and before 1987. Free e file 2012 For more information about distributions that do not qualify as lump-sum distributions, see Distributions that do not qualify under Lump-Sum Distributions in Publication 575. Free e file 2012 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. Free e file 2012 The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. Free e file 2012 The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. Free e file 2012 You may be able to use the 10-year tax option, discussed later, to figure tax on the ordinary income part. Free e file 2012 Use Form 4972 to figure the separate tax on a lump-sum distribution using the optional methods. Free e file 2012 The tax figured on Form 4972 is added to the regular tax figured on your other income. Free e file 2012 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. Free e file 2012 How to treat the distribution. Free e file 2012   If you receive a lump-sum distribution, you may have the following options for how you treat the taxable part. Free e file 2012 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. Free e file 2012 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). Free e file 2012 Use the 10-year tax option to figure the tax on the total taxable amount (if you qualify). Free e file 2012 Roll over all or part of the distribution. Free e file 2012 See Rollovers , later. Free e file 2012 No tax is currently due on the part rolled over. Free e file 2012 Report any part not rolled over as ordinary income. Free e file 2012 Report the entire taxable part of the distribution as ordinary income on your tax return. Free e file 2012   The first three options are explained in the following discussions. Free e file 2012 Electing optional lump-sum treatment. Free e file 2012   You can choose to use the 10-year tax option or capital gain treatment only once after 1986 for any plan participant. Free e file 2012 If you make this choice, you cannot use either of these optional treatments for any future distributions for the participant. Free e file 2012 Taxable and tax-free parts of the distribution. Free e file 2012    The taxable part of a lump-sum distribution is the employer's contributions and income earned on your account. Free e file 2012 You may recover your cost in the lump sum and any net unrealized appreciation (NUA) in employer securities tax free. Free e file 2012 Cost. Free e file 2012   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. Free e file 2012 You must reduce this cost by amounts previously distributed tax free. Free e file 2012 Net unrealized appreciation (NUA). Free e file 2012   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. Free e file 2012 (For more information, see Distributions of employer securities under Taxation of Nonperiodic Payments in Publication 575. Free e file 2012 ) 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. Free e file 2012 The amount treated as capital gain is taxed at a 20% rate. Free e file 2012 You can elect this treatment only once for any plan participant, and only if the plan participant was born before January 2, 1936. Free e file 2012 Complete Part II of Form 4972 to choose the 20% capital gain election. Free e file 2012 For more information, see Capital Gain Treatment under Lump-Sum Distributions in Publication 575. Free e file 2012 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. Free e file 2012 You pay the tax only once, for the year in which you receive the distribution, not over the next 10 years. Free e file 2012 You can elect this treatment only once for any plan participant, and only if the plan participant was born before January 2, 1936. Free e file 2012 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. Free e file 2012 You also can 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 do not choose capital gain treatment for that part. Free e file 2012 Complete Part III of Form 4972 to choose the 10-year tax option. Free e file 2012 You must use the special Tax Rate Schedule shown in the instructions for Part III to figure the tax. Free e file 2012 Publication 575 illustrates how to complete Form 4972 to figure the separate tax. Free e file 2012 Rollovers If you withdraw cash or other assets from a qualified retirement plan in an eligible rollover distribution, you can defer tax on the distribution by rolling it over to another qualified retirement plan or a traditional IRA. Free e file 2012 For this purpose, the following plans are qualified retirement plans. Free e file 2012 A qualified employee plan. Free e file 2012 A qualified employee annuity. Free e file 2012 A tax-sheltered annuity plan (403(b) plan). Free e file 2012 An eligible state or local government section 457 deferred compensation plan. Free e file 2012 Eligible rollover distributions. Free e file 2012   Generally, an eligible rollover distribution is any distribution of all or any part of the balance to your credit in a qualified retirement plan. Free e file 2012 For information about exceptions to eligible rollover distributions, see Publication 575. Free e file 2012 Rollover of nontaxable amounts. Free e file 2012   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. Free e file 2012 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. Free e file 2012   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. Free e file 2012   Any after-tax contributions that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. Free e file 2012 To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. Free e file 2012 For more information, see the Form 8606 instructions. Free e file 2012 Direct rollover option. Free e file 2012   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. Free e file 2012 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. Free e file 2012 Payment to you option. Free e file 2012   If an eligible rollover distribution is paid to you, 20% generally will be withheld for income tax. Free e file 2012 However, the full amount is treated as distributed to you even though you actually receive only 80%. Free e file 2012 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 or Roth IRA. Free e file 2012 (See Pensions and Annuities under Tax Withholding for 2014 in chapter 4. Free e file 2012 )    If you decide to roll over an amount equal to the distribution before withholding, your contribution to the new plan or IRA must include other money (for example, from savings or amounts borrowed) to replace the amount withheld. Free e file 2012 Time for making rollover. Free e file 2012   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. Free e file 2012 (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 for the period during which the distribution is in a frozen deposit in a financial institution. Free e file 2012 )   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. Free e file 2012   The administrator of a qualified plan must give you a written explanation of your distribution options within a reasonable period of time before making an eligible rollover distribution. Free e file 2012 Qualified domestic relations order (QDRO). Free e file 2012   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. Free e file 2012 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. Free e file 2012 You can roll over the distribution from the plan into a traditional IRA or to another eligible retirement plan. Free e file 2012 See Rollovers in Publication 575 for more information on benefits received under a QDRO. Free e file 2012 Rollover by surviving spouse. Free e file 2012   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. Free e file 2012 The rollover rules apply to you as if you were the employee. Free e file 2012 You can roll over a distribution into a qualified retirement plan or a traditional or Roth IRA. Free e file 2012 For a rollover to a Roth IRA, see Rollovers to Roth IRAs , later. Free e file 2012    A distribution paid to a beneficiary other than the employee's surviving spouse is generally not an eligible rollover distribution. Free e file 2012 However, see Rollovers by nonspouse beneficiary next. Free e file 2012 Rollovers by nonspouse beneficiary. Free e file 2012   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. Free e file 2012 The distribution must be a direct trustee-to-trustee transfer to your traditional or Roth IRA that was set up to receive the distribution. Free e file 2012 The transfer will be treated as an eligible rollover distribution and the receiving plan will be treated as an inherited IRA. Free e file 2012 For information on inherited IRAs, see What if You Inherit an IRA? in chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs). Free e file 2012 Retirement bonds. Free e file 2012   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 (as discussed in Publication 590) or a qualified employer plan. Free e file 2012 Designated Roth accounts. Free e file 2012   You can roll over an eligible rollover distribution from a designated Roth account into another designated Roth account or a Roth IRA. Free e file 2012 If you want to roll over the part of the distribution that is not included in income, you must make a direct rollover of the entire distribution or you can roll over the entire amount (or any portion) to a Roth IRA. Free e file 2012 For more information on rollovers from designated Roth accounts, see Rollovers in Publication 575. Free e file 2012 In-plan rollovers to designated Roth accounts. Free e file 2012   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. Free e file 2012 The rollover of any untaxed amounts must be included in income. Free e file 2012 See Designated Roth accounts under Rollovers in Publication 575 for more information. Free e file 2012 Rollovers to Roth IRAs. Free e file 2012   You can roll over distributions directly from a qualified retirement plan (other than a designated Roth account) to a Roth IRA. Free e file 2012   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 had not rolled them over into a Roth IRA. Free e file 2012 You do not 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. Free e file 2012 In addition, the 10% tax on early distributions does not apply. Free e file 2012 More information. Free e file 2012   For more information on the rules for rolling over distributions, see Rollovers in Publication 575. Free e file 2012 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. Free e file 2012 Ordinarily, you will not 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 reasonable amounts over your life expectancy. Free e file 2012 These special additional taxes are the taxes on: Early distributions, and Excess accumulation (not receiving minimum distributions). Free e file 2012 These taxes are discussed in the following sections. Free e file 2012 If you must pay either of these taxes, report them on Form 5329. Free e file 2012 However, you do not 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. Free e file 2012 Instead, enter 10% of the taxable part of the distribution on Form 1040, line 58 and write “No” under the heading “Other Taxes” to the left of line 58. Free e file 2012 Even if you do not owe any of these taxes, you may have to complete Form 5329 and attach it to your Form 1040. Free e file 2012 This applies if you meet an exception to the tax on early distributions but box 7 of your Form 1099-R does not indicate an exception. Free e file 2012 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 59½ are subject to an additional tax of 10%. Free e file 2012 This tax applies to the part of the distribution that you must include in gross income. Free e file 2012 For this purpose, a qualified retirement plan is: A qualified employee plan, A qualified employee annuity plan, A tax-sheltered annuity 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). Free e file 2012 5% rate on certain early distributions from deferred annuity contracts. Free e file 2012   If an early withdrawal from a deferred annuity is otherwise subject to the 10% additional tax, a 5% rate may apply instead. Free e file 2012 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. Free e file 2012 On line 4 of Form 5329, multiply the line 3 amount by 5% instead of 10%. Free e file 2012 Attach an explanation to your return. Free e file 2012 Distributions from Roth IRAs allocable to a rollover from an eligible retirement plan within the 5-year period. Free e file 2012   If, within the 5-year period starting with the first day of your tax year in which you rolled over an amount from an eligible retirement plan to a Roth IRA, you take a distribution from the Roth IRA, you may have to pay the additional 10% tax on early distributions. Free e file 2012 You generally must pay the 10% additional tax on any amount attributable to the part of the rollover that you had to include in income. Free e file 2012 The additional tax is figured on Form 5329. Free e file 2012 For more information, see Form 5329 and its instructions. Free e file 2012 For information on qualified distributions from Roth IRAs, see Additional Tax on Early Distributions in chapter 2 of Publication 590. Free e file 2012 Distributions from designated Roth accounts allocable to in-plan Roth rollovers within the 5-year period. Free e file 2012   If, within the 5-year period starting with the first day of your tax year in which you rolled over an amount from a 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. Free e file 2012 You generally must pay the 10% additional tax on any amount attributable to the part of the in-plan rollover that you had to include in income. Free e file 2012 The additional tax is figured on Form 5329. Free e file 2012 For more information, see Form 5329 and its instructions. Free e file 2012 For information on qualified distributions from designated Roth accounts, see Designated Roth accounts under Taxation of Periodic Payments in Publication 575. Free e file 2012 Exceptions to tax. Free e file 2012    Certain early distributions are excepted from the early distribution tax. Free e file 2012 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 do not have to report the distribution on Form 5329. Free e file 2012 If an exception applies but distribution code “1” (early distribution, no known exception) is shown in box 7, you must file Form 5329. Free e file 2012 Enter the taxable amount of the distribution shown in box 2a of your Form 1099-R on line 1 of Form 5329. Free e file 2012 On line 2, enter the amount that can be excluded and the exception number shown in the Form 5329 instructions. Free e file 2012    If distribution code “1” is incorrectly shown on your Form 1099-R for a distribution received when you were age 59½ or older, include that distribution on Form 5329. Free e file 2012 Enter exception number “12” on line 2. Free e file 2012 General exceptions. Free e file 2012   The tax does not 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 qualified retirement plan, the payments must begin after your separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. Free e file 2012 Additional exceptions for qualified retirement plans. Free e file 2012   The tax does not 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), 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% (or 7. Free e file 2012 5% if you or your spouse are age 65 or older) 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, From a qualified retirement plan due to an IRS levy of the plan, From elective deferral accounts under 401(k) or 403(b) plans or similar arrangements that are qualified reservist distributions, or Phased retirement annuity payments made to federal employees. Free e file 2012 See Pub. Free e file 2012 721 for more information on the phased retirement program. Free e file 2012 Qualified public safety employees. Free e file 2012   If you are a qualified public safety employee, distributions made from a governmental defined benefit pension plan are not subject to the additional tax on early distributions. Free e file 2012 You are a qualified public safety employee if you provide 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. Free e file 2012 Qualified reservist distributions. Free e file 2012   A qualified reservist distribution is not subject to the additional tax on early distributions. Free e file 2012 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. Free e file 2012 You must have been ordered or called to active duty after September 11, 2001. Free e file 2012 For more information, see Qualified reservist distributions under Special Additional Taxes in Publication 575. Free e file 2012 Additional exceptions for nonqualified annuity contracts. Free e file 2012   The tax does not apply to distributions from: A deferred annuity contract to the extent allocable to investment in the contract before August 14, 1982, A deferred annuity contract under a qualified personal injury settlement, 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 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). Free e file 2012 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). Free e file 2012 The payments each year cannot be less than the required minimum distribution. Free e file 2012 Required distributions not made. Free e file 2012   If the actual distributions to you in any year are less than the minimum required distribution for that year, you are subject to an additional tax. Free e file 2012 The tax equals 50% of the part of the required minimum distribution that was not distributed. Free e file 2012   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). Free e file 2012 Waiver. Free e file 2012   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. Free e file 2012 See the Instructions for Form 5329 for the procedure to follow if you believe you qualify for a waiver of this tax. Free e file 2012 State insurer delinquency proceedings. Free e file 2012   You might not receive the minimum distribution because assets are invested in a contract issued by an insurance company in state insurer delinquency proceedings. Free e file 2012 If your payments are reduced below the minimum due to these proceedings, you should contact your plan administrator. Free e file 2012 Under certain conditions, you will not have to pay the 50% excise tax. Free e file 2012 Required beginning date. Free e file 2012   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 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. Free e file 2012 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 70½, even if you have not retired. Free e file 2012   If you reached age 70½ in 2013, you may be required to receive your first distribution by April 1, 2014. Free e file 2012 Your required distribution then must be made for 2014 by December 31, 2014. Free e file 2012 5% owners. Free e file 2012   If you are a 5% owner, you must begin to receive distributions by April 1 of the year that follows the calendar year in which you reach age 70½. Free e file 2012   You are a 5% owner if, for the plan year ending in the calendar year in which you reach age 70½, 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. Free e file 2012 Age 70½. Free e file 2012   You reach age 70½ on the date that is 6 calendar months after the date of your 70th birthday. Free e file 2012   For example, if you are retired and your 70th birthday was on June 30, 2013, you were age 70½ on December 30, 2013. Free e file 2012 If your 70th birthday was on July 1, 2013, you reached age 70½ on January 1, 2014. Free e file 2012 Required distributions. Free e file 2012   By the required beginning date, as explained earlier, 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). Free e file 2012 Additional information. Free e file 2012   For more information on this rule, see Tax on Excess Accumulation in Publication 575. Free e file 2012 Form 5329. Free e file 2012   You must file Form 5329 if you owe tax because you did not receive a minimum required distribution from your qualified retirement plan. Free e file 2012 Survivors and Beneficiaries Generally, a survivor or beneficiary reports pension or annuity income in the same way the plan participant would have. Free e file 2012 However, some special rules apply. Free e file 2012 See Publication 575 for more information. Free e file 2012 Survivors of employees. Free e file 2012   If you are entitled to receive a survivor annuity on the death of an employee who died, you can exclude part of each annuity payment as a tax-free recovery of the employee's investment in the contract. Free e file 2012 You must figure the taxable and tax-free parts of your annuity payments using the method that applies as if you were the employee. Free e file 2012 Survivors of retirees. Free e file 2012   If you receive benefits as a survivor under a joint and survivor annuity, include those benefits in income in the same way the retiree would have included them in income. Free e file 2012 If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule and recovered all of the cost tax free, your survivor payments are fully taxable. Free e file 2012    If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage to your initial survivor annuity payment called for in the contract. Free e file 2012 The resulting tax-free amount will then remain fixed. Free e file 2012 Any increases in the survivor annuity are fully taxable. Free e file 2012    If the retiree was reporting the annuity payments 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. Free e file 2012 This amount remains fixed even if the annuity payments are increased or decreased. Free e file 2012 See Simplified Method , earlier. Free e file 2012   In any case, if the annuity starting date is after 1986, the total exclusion over the years cannot be more than the cost. Free e file 2012 Estate tax deduction. Free e file 2012   If your annuity was a joint and survivor annuity that was included in the decedent's estate, an estate tax may have been paid on it. Free e file 2012 You can deduct the part of the total estate tax that was based on the annuity. Free e file 2012 The deceased annuitant must have died after the annuity starting date. Free e file 2012 (For details, see section 1. Free e file 2012 691(d)-1 of the regulations. Free e file 2012 ) Deduct it in equal amounts over your remaining life expectancy. Free e file 2012   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. Free e file 2012   You can take the estate tax deduction as an itemized deduction on Schedule A, Form 1040. Free e file 2012 This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. Free e file 2012 See Publication 559, Survivors, Executors, and Administrators, for more information on the estate tax deduction. Free e file 2012 Prev  Up  Next   Home   More Online Publications