Len is entitled to receive monthly payments of $1,500 over his life from his employer's qualified pension plan.The payments begin January 1,2014.He contributed $71,500 to the plan prior to his retirement at age 62.Using the simplified method,how much of the payments will be included in Len's taxable income for 2014?

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To determine the taxable portion of the pension payments using the simplified method, you divide the amount of the after-tax contributions by the expected return (the number of payments expected to be received).

In this case, Len contributed $71,500 to the plan, which is his after-tax contributions. To calculate the expected return, you would use the IRS Simplified Method Worksheet found in Publication 939.

Assuming a life expectancy of 18 years, the expected annual return is $11,388.89 ($1,500 x 12 months).

Dividing Len's after-tax contributions of $71,500 by the expected annual return of $11,388.89 gives a factor of 6.276.

To determine the taxable portion of the payments for 2014, you multiply the monthly payment of $1,500 by the factor of 6.276, giving an annual taxable amount of $14,700.

Len Is Entitled to Receive Monthly Payments of $1,500 Over