Form 42A740-S21. 4972-K - Kentucky Tax on Lump-Sum Distributions-2025

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Lump-sum payouts are calculated by determining the present value of your future monthly guaranteed pension income, using actuarial factors based on age, mortality tables published by the Society of Actuaries, and the Internal Revenue Services minimum present value segment rates, which are updated monthly.
Lump sum payment refers to a one-time large payment of money given to an employee, usually instead of a series of payments made over time. Lump sum payment has a lower value when provided to pay for an asset or service because the sum total of the funds is being paid upfront.
Here we answer some of the common questions around taking a tax-free lump sum. Generally, the first 25% of your pension lump sum is tax-free. The remaining 75% is taxable at the same rate as income tax.
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Investors can avoid taxes on a lump sum pension payout by rolling over the proceeds into an individual retirement account (IRA) or other eligible retirement accounts.
Know: You will pay taxes on your lump-sum payout. Your lump sum money is generally treated as ordinary income for the year you receive it (rollovers dont count; see below). For this reason, your employer is required to withhold 20 percent of the payout.
A lump-sum distribution is a one-time payment of the entire balance of your retirement account within a single tax year.
Lump-sum payments give you more control over your money, allowing you the flexibility of spending it or investing it when and how you see fit. Studies show that retirees with monthly pension income are more likely to maintain their spending levels than those who take lump-sum distributions.
Lump-sum payouts are calculated by determining the present value of your future monthly guaranteed pension income, using actuarial factors based on age, mortality tables published by the Society of Actuaries, and the Internal Revenue Services minimum present value segment rates, which are updated monthly.

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