Forward averaging

Forward averaging

A method of calculating taxes on a lump sum distribution from a qualified retirement plan that enables the tax payer to pay less than the current tax rate.

Forward Averaging

A former practice allowing certain pensioners in the United States to treat lump sum retirement plan withdrawals as if they occurred over a period of five or 10 years. This allowed qualifying retirees to pay only one-fifth or one-tenth of the taxes that they would otherwise have had to pay in a given year. Forward averaging was discontinued in 2000.
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It can be reported using 10-year forward averaging if the client participated in the plan for at least five years.
Counseling older clients
Special tax treatment under the five-year or 10-year forward averaging rules may be available to further reduce the amount of tax due on the distribution.
Planning with employer stock in a qualified plan
If you're older, you could get a break, because you may be eligible for favorable tax treatment under forward averaging rules.
Rolling over those IRAs
Money in an IRA-SEP, however, isn't eligible for 10-year forward averaging.
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