Jay,a Single Taxpayer,retired from His Job as a Public School

Jay,a single taxpayer,retired from his job as a public school teacher in 2011.He is to receive a retirement annuity of $1,000 each month and his life expectancy is 150 months.He contributed $30,000 to the pension plan during his 35-year career; so his adjusted basis is $30,000.What is the correct method for reporting the pension income?

A) Since Jay is no longer working, none of the pension must be included in his gross income.
B) The first $30,000 received is a nontaxable recovery of capital, and all subsequent annuity payments are taxable.
C) The first $120,000 he receives is taxable and the last $30,000 is a nontaxable recovery of capital.
D) For the first 150 months, 20% ($30,000/$150,000) of the amount received is a nontaxable recovery of capital and the balance is included in gross income.
E) None of the above.