Ten-year Averaging

Ten-year Averaging

Ten-year Averaging means:
a method of calculating income tax on a lump-sum distribution from a qualified plan that reduces a beneficiary's tax liability on the distribution. It is available only to a participant who was age 50 years or older before January 1, 1986, and had been a participant in the plan for at least 5 years before the year of distribution.

The tax is calculated, using a separate 10-year averaging rate table, on one-tenth of the excess of the portion of the distribution subject to averaging over the minimum distribution allowance. The minimum distribution alloivance is the lesser of $10,000 or >/2 the portion of the distribution subject to averaging, minus 20% of the portion subject to averaging in excess of $20,000. The tax computed in this manner is then multiplied by 10 for the actual tax on the distribution.

State Income Tax

Description and Definition of Ten-Year Averaging

A favorable method of computing tax on a lump-sum retirement distribution available only to taxpayers born before January 1, 1936. When five-year averaging is abolished in 2000 ten-year averaging will remain for qualifying retirees.


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