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Pension Simplified Method CalculatorTax-Free Part of Each Payment

What does this come to under the current IRS rules?

Monthly tax-free amount of a pension or annuity from the investment in the contract and the expected number of payments, single or joint life.

  • Runs in your browser
  • Nothing stored or sent
  • Free, no sign-up
Your figures
Example figuresIllustrative only. Type over them with your own.
Taxable pension this year
$20,215
Payments received less the tax-free part
Tax-free part this year
$1,385
Monthly tax-free amount
$115
Drawn to one scale
Taxable pension this year$20,215
Tax-free part this year$1,385
Monthly tax-free amount$115
Pension received this year$21,600
All results
MeasureResult
Taxable pension this year$20,215
Tax-free part this year$1,385
Monthly tax-free amount$115
Expected number of payments260.00
Pension received this year$21,600
How this was worked out
Work shownrecomputed as you type
Monthly tax-free amount = investment in the contract / expected number of payments
Single life: 360 (age 55 or less), 310 (56 to 60), 260 (61 to 65), 210 (66 to 70), 160 (over 70)
Joint life, combined ages: 410 (110 or less), 360 (111 to 120), 310 (121 to 130), 260 (131 to 140), 210 (over 140)
This tool stops the exclusion once the investment in the contract is recovered

Illustrative arithmetic on the figures you enter. Check the result against your firm's methodology before relying on it.

The formulas

  • Monthly tax-free amount = investment in the contract / expected number of payments
  • Single life: 360 (age 55 or less), 310 (56 to 60), 260 (61 to 65), 210 (66 to 70), 160 (over 70)
  • Joint life, combined ages: 410 (110 or less), 360 (111 to 120), 310 (121 to 130), 260 (131 to 140), 210 (over 140)
  • This tool stops the exclusion once the investment in the contract is recovered

How it works

The simplified method of section 72(d)(1) spreads your after-tax cost in a pension or annuity evenly over a fixed number of expected monthly payments set by age. Each payment is partly a tax-free return of cost and partly taxable.

Enter prior recovered cost so the tool stops the exclusion at the remaining cost. The method applies to payments from qualified employer plans as described in the statute.

Illustrative figures only. Check the result against your firm's methodology before relying on it.

Common questions

Which age do I use?

Age at the annuity starting date. For a joint and survivor annuity use the combined ages of the annuitant and the survivor.

What is the investment in the contract?

Your own after-tax contributions, not employer contributions or pre-tax deferrals.

What if I die before recovering my cost?

This tool does not model deductions for unrecovered cost.

Sources

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

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