Len is entitled to receive monthly payments of $1,500 over his life from his employer's qualified pension plan.The payments begin January 1,2016.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 2016?

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Under the simplified method, Len's total contributions of $71,500 are spread over his expected number of payments based on his age at retirement. At age 62, the IRS provides a factor of 260. Thus, $71,500 / 260 = $275 per month is considered a return of his own contributions and is not taxable. Therefore, $1,500 - $275 = $1,225 of each monthly payment is taxable. For 12 months, $1,225 x 12 = $14,700 is included in his taxable income for 2016.

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