David, age 62, retires and receives $1,000 per month annuity from his employer's qualified pension plan. David made $65,000 of after- tax contributions to the plan prior to his retirement. Under the simplified method, David's number of anticipated payments is 260. What is the amount includible in income in the first year of withdrawals assuming 12 monthly payments?

Question

Quizplus · Accepted Answer

David receives $12,000 annually ($1,000 x 12). Under the simplified method, the exclusion ratio is calculated as the after-tax contributions divided by the number of anticipated payments: $65,000 / 260 = $250 per payment. Therefore, $250 x 12 = $3,000 is excluded from income, making $9,000 ($12,000 - $3,000) includible in income.

David, Age 62, Retires and Receives $1,000 Per Month Annuity