Hamden is entitled to receive monthly payments of $6,000 over his life from his employer's qualified pension plan.The payments begin January 1,2017.He contributed $286,000 to the plan prior to his retirement at age 62.Using the simplified method,what amount of the payments will be excluded from Hamden's taxable income for 2017?

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Quizplus · Accepted Answer

The simplified method is used to calculate the nontaxable portion of each annuity payment by dividing the total contributions by the number of expected monthly payments. For someone Hamden's age (62), the IRS provides a uniform lifetime table to determine this number. Assuming the standard divisor for his age is 260 months, the calculation would be $286,000 / 260 = $1,100 per month. Since he receives $6,000 monthly, $1,100 of each payment is excluded from taxable income. Over 12 months, this amounts to $1,100 * 12 = $13,200 excluded from his taxable income for 2017.

Hamden Is Entitled to Receive Monthly Payments of $6,000 Over