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, 2015. 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 2015?

Question

Quizplus · Accepted Answer

Under the simplified method, the exclusion amount is calculated by dividing the employee's total contributions by the number of anticipated payments. For someone who retires at age 62, the IRS table provides 260 anticipated payments. Thus, $286,000 / 260 = $1,100 per month is excluded. For 12 months, $1,100 x 12 = $13,200 is excluded from taxable income for 2015.

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