Question

Rick, a retired single taxpayer, began receiving a monthly pension from his former employer in January 2016. He was age 66 when he received the first payment, and the pension will pay over the course of his life. He received a Form 1099-R for the tax year showing a gross distribution of $8,000 in box 1, code 7 in box 7, and total employee contributions of $20,000 in box 9b. Box 2a is blank, and box 2b indicates that the taxable amount is not determined. How much of Rick's distribution is taxable?

	$0
	$6,858
	$8,000
	$18,858

Answer 1

Answer:

Correct answer is: $6,858

Explanation:

To calculate tax free portion of gross distribution, one has to divide one's investment in contract by the number of monthly payments from the appropriate IRS table. For age 66, from relevant IRS table, the number of monthly payments = 210

As such monthly tax free amount = $20,000 / 210

Tax free amount for the year = ($20,000 / 210) * 12 = $1,142

Hence taxable amount = $8,000 - $1,142 = $6,858

Other options are incorrect.