How to use annuity tables

how to use annuity tables

How To Use Actuarial Tables

In figuring, under the General Rule, the taxable part of your annuity payments that you are to get for the rest of your life (rather than for a fixed number of years), you must use one or more of the actuarial tables in this publication.

Unisex Annuity Tables

Effective July 1, 1986, the Internal Revenue Service adopted new annuity Tables V through VIII, in which your sex is not considered when determining the applicable factor. These tables correspond to the old Tables I through IV. In general, Tables V through VIII must be used if you made contributions to the retirement plan after June 30, 1986. If you made no contributions to the plan after June 30, 1986, generally you must use only Tables I through IV. However, if you received an annuity payment after June 30, 1986, you may elect to use Tables V through VIII (see Annuity received after June 30, 1986, later).

Special Elections

Although you generally must use Tables V through VIII if you made contributions to the retirement plan after June 30, 1986, and Tables I through IV if you made no contributions after June 30, 1986, you can make the following special elections to select which tables to use.

Contributions made both before July 1986 and after June 1986. If you made contributions to the retirement plan both before July 1986 and after June 1986, you may elect to use Tables I through IV for the pre-July 1986 cost of the contract, and Tables V through VIII for the post-June 1986 cost. (See the examples below.)

Making the election. Attach this statement to your income tax return for the first year in which you receive an annuity:

"I elect to apply the provisions of paragraph (d) of section 1.72-6 of the Income Tax

Regulations."

The statement must also include your name, address, social security number, and the amount of the pre-July 1986 investment in the contract.

If your investment in the contract includes post-June 1986 contributions to the plan, and you do not make the election to use Tables I through IV and Tables V through VIII, then you can only use Tables V through VIII in figuring the taxable part of your annuity. You must also use Tables V through VIII if you are unable or do not wish to determine the portions of your contributions which were made before July 1, 1986 and after June 30, 1986.

Advantages of election. In general, a lesser amount of each annual annuity payment is taxable if you separately figure your exclusion ratio for pre-July 1986 and post-June 1986 contributions.

If you intend to make this election, save your records that substantiate your pre-July 1986 and post-June 1986 contributions. If the death benefit exclusion applies (see discussion, earlier), you do not have to apportion it between the pre-July 1986 and the post-June 1986 investment in the contract.

The following examples illustrate the separate computations required if you elect to use Tables I through IV for your pre-July 1986 investment in the contract and Tables V through VIII for your post-June 1986 investment in the contract.

Example 1. Bill Green, who is single, contributed $42,000 to the retirement plan and will receive an annual annuity of $24,000 for life. Payment of the $42,000 contribution is guaranteed under a refund feature. Bill is 55 years old as of the annuity starting date. For figuring the taxable part of Bill's annuity, he chose to make separate computations for his pre-July 1986 investment in the contract of $41,300, and for his post-June 1986 investment in the contract of $700.

Source: www.unclefed.com

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