Tax Facts

616 / How is an employee taxed on periodic retirement benefits under a qualified pension, annuity, or profit sharing plan if the annuity starting date is on or before July 1, 1986?

Updated: January 02, 2025 at 05:54 AM
If an employee’s annuity starting date was on or before July 1, 1986, payments were taxed according to the three year cost recovery rule or the regular annuity rules.1 The three year cost recovery rule was repealed for employees with an annuity starting date after July 1, 1986.2 Certain premature distributions are subject to an additional tax ( Q 3964). Excess retirement distributions were subject to an additional tax in years beginning before 1997.




1.     IRC § 72(d)(1), prior to repeal.

2.     TRA ’86, § 1122(c)(1).


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