IRS Form 4972 walkthrough (Tax on Lump Sum Distributions): Fill out & sign online

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What is Form 4972 on taxes?

If you were older than 59-1/2 before you received a lump sum from a qualified employee retirement plan, you may have some other options that can reduce your tax bill. To use any of these special treatments, you must complete IRS Form 4972, Tax on Lump-Sum Distributions, and attach it to your tax return.

What is the 10 year tax option on lump-sum distributions?

Essentially, you may qualify for ten-year averaging when you receive a lump-sum distribution (LSD) from a qualified plan. In effect, youre treated as if youre receiving the payout over ten years for tax purposes, thereby reducing the overall tax liability.

What is a lump-sum distribution under the tax code?

In general, distributions from qualified plans are treated as lump sums if the total plan balance is distributed over the same tax year, and if the distribution is made as a result of the employee: Attaining age 59 Being deceased (applicable to beneficiaries)

How are lump-sum payments taxed?

Mandatory Withholding Mandatory income tax withholding of 20% applies to most taxable distributions paid directly to you in a lump sum from employer retirement plans even if you plan to roll over the taxable amount within 60 days. Note that the default rate of withholding may be too low for your tax situation.

What is the tax on lump sum distributions Form 4972?

If you take a lump-sum distribution, even using Form 4972, the retirement plan administrator typically withholds 20% of your withdrawal and sends it to the IRS on your behalf. If your ultimate tax liability is lower than 20%, you can claim that part back when you file your taxes.

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