Averaging can't be used when participant died before age 59 1/2.Joseph Cebula, a participant in the retirement plan of his employer, died at age 45. The sole beneficiary beneficiary Person or entity (e.g., a charity or estate) that receives a benefit from something (e.g., a trust, life-insurance policy, or contract). A primary beneficiary receives proceeds from a trust or insurance policy before any other. of his interest in the plan was his widow, Mary, who elected to receive Joseph's entire $175,000 balance in a lump-sum distribution Lump-Sum Distribution A one time payment for the entire amount due, rather than breaking payments into smaller installments. Some lump-sum distributions receive special tax treatment. . She reported this amount on her 1989 return and used the five-year averaging method to calculate the tax due. The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. claimed Mary was not entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to use the averaging method and asserted a $15,000 tax deficiency. As long as the IRS requirements have been met, a recipient of a lump-sum distribution from a qualified plan may elect to have.the distribution taxed under the five-year average rules, which generally result in payment of less tax. Code section 402(d)(4)(b)(i) says averaging is available only if the lump-sum distribution is received on or after the day the "employee has attained at·tain v. at·tained, at·tain·ing, at·tains v.tr. 1. To gain as an objective; achieve: attain a diploma by hard work. 2. age 59 1/2." Result: For the IRS. Under the statute's plain language employee must have reached age 59 1/2 for the averaging method to be available. Therefore, Mrs. Cebula must pay $15,000 of tax. |
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