10-year Averaging

10-year Averaging

10-Year Averaging
This is a special method available to determine the tax on a qualified lump-sum distribution for any taxpayer who was born before 1936 and meets the other requirements. The tax computed using 10-year averaging is done on IRS Form 4972.
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This may include 10-year averaging for a taxpayer born on or before Jan.
Is the client eligible for 10-year averaging? Is portfolio diversification an issue?
He reported them as lump-sum distributions (LSDs) and used the 10-year averaging method to calculate the tax owed.
Certain individuals who were 50 before 1986 also can elect 10-year averaging under transitional rules.
The IRS argued the distributions therefore were taxable in the years received without the benefit of 10-year averaging.
The bill preserves the transition rules adopted in the Tax Reform Act of 1986." Under this proposal, persons eligible for these transition rules would be able to continue to elect five- and 10-year averaging and capital gains treatment as under existing law.
In Fowler,(72) the Tax Court denied 10-year averaging for a taxpayer who received lump-sum distributions from his former employer's incentive savings plan and profit-sharing plan and chose to roll over part of the savings plan distribution.
He rolled over most of the incentive savings plan distribution into an IRA and claimed 10-year averaging for the profit-sharing distribution.
Oddi initially favored the IRA, but his tax adviser (Ayco) advised selection of the lump-sum option that allowed 10-year averaging and a 20% capital gains rate during a limited window ending Mar.
457 plan are not eligible for five- or 10-year averaging (under Sec.