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Reporting an annuity distribution under the Simplified Method in ProConnect Tax

by ProConnect Tax Online Updated 2 months ago

Refer to the Box 2a. Taxable Amount section of the IRS Instructions for Form 1099-R and 5498 to find out if you should use the Simplified Method. You can also check out Pub 575 or Pub 721 for more information.

If the taxpayer received U.S. Civil Service retirement benefits and chose the lump-sum credit option, you shouldn't use the Simplified Method, per IRS Pub 721.

Follow these steps to enter an annuity under the Simplified Method:

  1. Go to the Input Return tab.
  2. From the left of the screen, select Income and choose Pensions, IRAs, (1099-R).
  3. Enter the applicable information in the Quick Entry grid.
    • For Gross distribution, enter the full distribution amount.
    • You can leave the Taxable amount field blank.
  4. Click the blue Details button to expand.
  5. Complete the Payer Information section.
  6. From the top of the screen, select Annuities.
  7. Scroll down to the Simplified Method section.
  8. Enter the following information:
    • Cost in plan at annuity starting date (plus death benefit exclusion)
    • Annuity starting date
    • Age at annuity starting date
    • Combined ages at annuity starting date
      • If the taxpayer's annuity starting date was after 1997, and the payments are for the taxpayer's life and that of the beneficiary, enter the taxpayer's and beneficiary's combined ages on the annuity starting date.
      • The program uses this entry in selecting the amount from Table 2 in the Form 1040 instructions. If there are multiple beneficiaries, refer to Pub 575 to calculate each beneficiary's taxable amount.
    • Amount recovered tax free after 1986

ProConnect Tax will use your entries to determine the taxable amount of the annuity for Form 1040, line 4b (line 16b in prior years).

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