Q. I’m age 78 and the founder of my company. Since I retired last year, can I still elect 10-year averaging for my retirement plan? K.C., Key Largo, Fla.
A. Yes. To qualify for this break, you must have been born before 1936, so you barely make it. Under 10-year averaging, the tax on a lump-sum distribution from a qualified retirement plan is based on the tax rates in effect for single taxpayers in 1986 and is applied to the ordinary income portion of the distribution. Furthermore, a flat 20% capital gain rate is also available for the taxable portion of a lump-sum distribution attributable to plan participation before 1974.
Tip: Ten-year averaging isn’t mandatory, so figure out the tax both ways.