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10-Year Averaging

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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.

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