Example: Let’s say you’re entitled to a $500,000 payout from your company retirement plan. You began participating in the plan on Dec. 31, 1970, and terminated your employment on May 1, 1995. Thus, you have 48 months (four full years) of pre-1974 participation and 257 months (21 years and five months) of post-1973 participation.
On those facts, the capital gain portion of the distribution is $78,689 ($500,000 times 48 months divided by 305 total months). The remaining ordinary income portion is $421,311 ($500,000 times 257 months divided by 305 total months).
- Small Business Tax Deduction Strategies No matches