Financial Planning Toolkit - Planning Tools

Simplified Method Worksheet for Pension Payments

If you're receiving a pension that was entirely paid for by your employer, the entire amount of your payments will be taxed, and you don't need this tool.

But if you, as an employee, made some voluntary pretax contributions to your pension plan, or if you purchased a commercial annuity and are receiving payments from it, you can recover the amount of your own contributions tax-free.

In either case, a portion of each pension or annuity payment you receive will be nontaxable; the question is, how much? The pension or annuity sponsor may compute the amount for you and report it on the 1099-R information statement that you receive. However, in some cases, you'll have to compute it yourself.

That's where this worksheet will come in handy. If your payments began after November 18, 1996, and they are from a qualified retirement plan payable over your life, or over your life and that of a beneficiary, you are required to use the "Simplified Method," and you can use the worksheet provided to figure your taxable annuity amount for the year.

If your payments began after July 1, 1986 but before November 19, 1996, you may use the simplified method for payments from a qualified plan; you also have the option of using the General Rule Method which is considerably more complicated (and if you want to use it, we recommend that you get IRS Publication 939, General Rule for Pensions and Annuities).

simplified method worksheet

The files are in Adobe portable document format (PDF), which requires the use of Adobe Acrobat Reader.

Adobe Acrobat Reader is available, without charge, at the Adobe website.

For more information, see our discussion of partially nontaxable payments.

Insurance and Risk Financial Planning