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(1) Simplified method of taxing annuity payments
(A) In general In the case of any amount received as an annuity under a qualified employer retirement plan— (i) subsection (b) shall not apply, and (ii) the investment in the contract shall be recovered as provided in this paragraph.
(B) Method of recovering investment in contract (i) In general Gross income shall not include so much of any monthly annuity payment under a qualified employer retirement plan as does not exceed the amount obtained by dividing— (I) the investment in the contract (as of the annuity starting date), by (II) the number of anticipated payments determined under the table contained in clause (iii) (or, in the case of a contract to which subsection (c)(3)(B) applies, the number of monthly annuity payments under such contract). (ii) Certain rules made applicable Rules similar to the rules of paragraphs (2) and (3) of subsection (b) shall apply for purposes of this paragraph. (iii) Number of anticipated payments If the annuity is payable over the life of a single individual, the number of anticipated payments shall be determined as follows:
| If the age of the annuitant on the annuity starting date is: | The number of anticipated payments is: |
|---|---|
| Not more than 55 | 360 |
| More than 55 but not more than 60 | 310 |
| More than 60 but not more than 65 | 260 |
| More than 65 but not more than 70 | 210 |
| More than 70 | 160. |
(iv) Number of anticipated payments where more than one life If the annuity is payable over the lives of more than 1 individual, the number of anticipated payments shall be determined as follows:
| If the combined ages of annuitants are: | The number is: |
|---|---|
| Not more than 110 | 410 |
| More than 110 but not more than 120 | 360 |
| More than 120 but not more than 130 | 310 |
| More than 130 but not more than 140 | 260 |
| More than 140 | 210. |
(C) Adjustment for refund feature not applicable For purposes of this paragraph, investment in the contract shall be determined under subsection (c)(1) without regard to subsection (c)(2).
(D) Special rule where lump sum paid in connection with commencement of annuity payments If, in connection with the commencement of annuity payments under any qualified employer retirement plan, the taxpayer receives a lump-sum payment— (i) such payment shall be taxable under subsection (e) as if received before the annuity starting date, and (ii) the investment in the contract for purposes of this paragraph shall be determined as if such payment had been so received.
(E) Exception This paragraph shall not apply in any case where the primary annuitant has attained age 75 on the annuity starting date unless there are fewer than 5 years of guaranteed payments under the annuity.
(F) Adjustment where annuity payments not on monthly basis In any case where the annuity payments are not made on a monthly basis, appropriate adjustments in the application of this paragraph shall be made to take into account the period on the basis of which such payments are made.
(G) Qualified employer retirement plan For purposes of this paragraph, the term “qualified employer retirement plan” means any plan or contract described in paragraph (1), (2), or (3) of section 4974(c).
In the case of any amount received as an annuity under a qualified employer retirement plan—
(i) subsection (b) shall not apply, and
(ii) the investment in the contract shall be recovered as provided in this paragraph.
subsection (b) shall not apply, and
the investment in the contract shall be recovered as provided in this paragraph.
(i) In general Gross income shall not include so much of any monthly annuity payment under a qualified employer retirement plan as does not exceed the amount obtained by dividing— (I) the investment in the contract (as of the annuity starting date), by (II) the number of anticipated payments determined under the table contained in clause (iii) (or, in the case of a contract to which subsection (c)(3)(B) applies, the number of monthly annuity payments under such contract).
(ii) Certain rules made applicable Rules similar to the rules of paragraphs (2) and (3) of subsection (b) shall apply for purposes of this paragraph.
(iii) Number of anticipated payments If the annuity is payable over the life of a single individual, the number of anticipated payments shall be determined as follows:
| If the age of the annuitant on the annuity starting date is: | The number of anticipated payments is: |
|---|---|
| Not more than 55 | 360 |
| More than 55 but not more than 60 | 310 |
| More than 60 but not more than 65 | 260 |
| More than 65 but not more than 70 | 210 |
| More than 70 | 160. |
(iv) Number of anticipated payments where more than one life If the annuity is payable over the lives of more than 1 individual, the number of anticipated payments shall be determined as follows:
| If the combined ages of annuitants are: | The number is: |
|---|---|
| Not more than 110 | 410 |
| More than 110 but not more than 120 | 360 |
| More than 120 but not more than 130 | 310 |
| More than 130 but not more than 140 | 260 |
| More than 140 | 210. |
Gross income shall not include so much of any monthly annuity payment under a qualified employer retirement plan as does not exceed the amount obtained by dividing—
(I) the investment in the contract (as of the annuity starting date), by
(II) the number of anticipated payments determined under the table contained in clause (iii) (or, in the case of a contract to which subsection (c)(3)(B) applies, the number of monthly annuity payments under such contract).
the investment in the contract (as of the annuity starting date), by
the number of anticipated payments determined under the table contained in clause (iii) (or, in the case of a contract to which subsection (c)(3)(B) applies, the number of monthly annuity payments under such contract).
Rules similar to the rules of paragraphs (2) and (3) of subsection (b) shall apply for purposes of this paragraph.
If the annuity is payable over the life of a single individual, the number of anticipated payments shall be determined as follows:
| If the age of the annuitant on the annuity starting date is: | The number of anticipated payments is: |
|---|---|
| Not more than 55 | 360 |
| More than 55 but not more than 60 | 310 |
| More than 60 but not more than 65 | 260 |
| More than 65 but not more than 70 | 210 |
| More than 70 | 160. |
If the annuity is payable over the lives of more than 1 individual, the number of anticipated payments shall be determined as follows:
| If the combined ages of annuitants are: | The number is: |
|---|---|
| Not more than 110 | 410 |
| More than 110 but not more than 120 | 360 |
| More than 120 but not more than 130 | 310 |
| More than 130 but not more than 140 | 260 |
| More than 140 | 210. |
For purposes of this paragraph, investment in the contract shall be determined under subsection (c)(1) without regard to subsection (c)(2).
If, in connection with the commencement of annuity payments under any qualified employer retirement plan, the taxpayer receives a lump-sum payment—
(i) such payment shall be taxable under subsection (e) as if received before the annuity starting date, and
(ii) the investment in the contract for purposes of this paragraph shall be determined as if such payment had been so received.
such payment shall be taxable under subsection (e) as if received before the annuity starting date, and
the investment in the contract for purposes of this paragraph shall be determined as if such payment had been so received.
This paragraph shall not apply in any case where the primary annuitant has attained age 75 on the annuity starting date unless there are fewer than 5 years of guaranteed payments under the annuity.
In any case where the annuity payments are not made on a monthly basis, appropriate adjustments in the application of this paragraph shall be made to take into account the period on the basis of which such payments are made.
For purposes of this paragraph, the term “qualified employer retirement plan” means any plan or contract described in paragraph (1), (2), or (3) of section 4974(c).
For purposes of this section, employee contributions (and any income allocable thereto) under a defined contribution plan may be treated as a separate contract.
For purposes of this section, contributions to a pension-linked emergency savings account to which section 402A(e) applies (and any income allocable thereto) may be treated as a separate contract.