Separate the taxable and tax-free parts of a pension or annuity
Key facts
- Human involvement
- YellowClose supervision
- How AI is used
- List whether the person made after-tax contributions, whether any remain, whether the payment is a qualified Roth distribution, and the annuity starting date. Do not compute the tax.
- What the lawyer must review
- IRS Topic no. 410 says pension or annuity payments from a qualified employer plan are taxable in whole or in part unless the payment is a qualified distribution from a designated Roth account. Payments are fully taxable if the person has no investment in the contract: no after-tax contribution, no after-tax amount withheld from salary, or the after-tax amount was already recovered tax-free. If the person contributed after-tax dollars, the return of that investment is not taxed. The investment includes employer amounts that were taxable when contributed. If the annuity starting date is after 18 November 1996, the simplified method is generally required. Topic no. 411, which explains that method, was not opened, so do not apply a formula. The additional 10 per cent tax is a separate question and is not applied to a part of the distribution that is tax-free. Topic no. 412's special lump-sum options are for a person born before 2 January 1936. Do not use them for anyone else. An eligible rollover paid to the person is subject to 20 per cent withholding of the taxable amount. You decide what is taxable. These are not Australian tax components.
- Written for / version
- United States versionUSCth
Who does what
| Role | What they do |
|---|---|
| Assistance | Consider narrowly defined preparation support after confirming the tool’s capability and permitted scope. |
| Lawyer | Set the scope, supervise the work closely, verify every part relied on, resolve omissions and exceptions, and approve the exact output. |
Checklist
- Trace every relied-on figure to its source, confirm dates and assumptions, and independently recalculate totals or derived amounts.
- Review operative clauses in the complete document, including definitions, cross-references, schedules and inconsistencies with the instructions.
- Confirm the output against the client’s instructions and the complete relevant source material, including omissions or contradictions.
- Resolve exceptions and record the responsible lawyer’s approval of the exact output and intended use.