Get 2001 Form 4972 (Fill-in Version). Tax On Lump-Sum Distributions

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.

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.

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.

As a retiree, when you get a lump sum pension payout, not only is this considered ordinary income, but the payout could also push your income into a higher tax bracket.

Choose the 10-year averaging method by completing Part III. Figure tax using the 10-year averaging method, which taxes the ordinary income part of the lump-sum distribution in the current year as if you received it in equal parts over 10 years.

A lump sum also requires careful asset management. If you put the money into conservative investments so you don't lose money, the growth may not keep pace with inflation. However, if you invest in assets that can yield greater returns, you have a higher risk of losses.

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.

If you and your spouse are filing a joint return and each has received a lump-sum distribution, complete and file a separate Form 4972 for each spouse, combine the tax, and include the combined tax in the total on Form 1040 or 1040-SR, line 16. Be sure to check box 2 on Form 1040 or 1040-SR, line 16.