614 / How is an employee taxed on periodic retirement benefits under a qualified pension, annuity, or profit sharing plan if the annuity starting date is after November 18, 1996 and before January 1, 1998?
The tax treatment is the same whether payment is made directly from a qualified trust or annuity plan or whether a trust buys an annuity and distributes it to an employee.2 Distribution of an annuity contract itself affects the tax on lump sum distributions ( Q 140). If an employee has a cost basis for his or her interest, payments are taxed as discussed below, depending on the annuity starting date.
If an employee had a cost basis for his or her interest, and the annuity starting date was after November 18, 1996 and before January 1, 1998 (or if the annuity is payable over one life and has a starting date after December 31, 1997, as described above), the investment in the contract was recovered according to the schedule below. For purposes of this rule, the employee’s investment in the contract did not include any adjustment for a refund feature under the contract.3
The excludable portion of each monthly payment was determined by dividing the employee’s investment in the contract by the number of anticipated payments contained in the following table:4
| Age | Number of Payments |
| 55 and under | 360 |
| 56 – 60 | 310 |
| 61 – 65 | 260 |
| 66 – 70 | 210 |
| 71+ | 160 |