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10-Year Averaging

If you choose the 10-year option to figure the tax on a lump-sum distribution from a qualified retirement plan, you'll basically figure your tax on 10 percent of the amount using a special chart based on the 1986 tax rates for a single person, as shown below. Then multiply this amount by 10 to find your total tax on the lump sum.

10-Year Averaging Rate Table
Amount Subject to Averaging: The Tax Is Of The Amount Over
Over But Not Over  
$ 0 $1,190 11% $ 0
1,190 2,270 $ 130.90 + 12% 1,190
2,270 4,530 260.50 + 14% 2,270
4,530 6,690 576.90 + 15% 4,530
6,690 9,170 900.90 + 16% 6,690
9,170 11,440 1,297.70 + 18% 9,170
11,440 13,710 1,706.30 + 20% 11,440
13,710 17,160 2,160.30 + 23% 13,710
17,160 22,880 2,953.80 + 26% 17,160
22,880 28,600 4,441.00 + 30% 22,880
28,600 34,320 6,157.00 + 34% 28,600
34,320 42,300 8,101.80 + 38% 34,320
42,300 57,190 11,134.20 + 42% 42,300
57,190 85,790 17,388.00 + 48% 57,190
85,790   31,116.00 + 50% 85,790

If you are eligible to do so and think you want to use any of the special tax methods, Part III of Form 4972, Tax on Lum-Sum Distributions, will walk you through the computations, and help you choose the method that will result in the lowest total tax bill.

Planning Tools

Planning Tools

You can download Form 4972 to aid in your financial planning.


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