Special tax computations are allowed for qualifying recipients of certain lump-sum distributions from retirement plans. This is known as five or ten-year tax option. Lump-sum distributions must meet specific requirements to qualify for optional tax treatment.

The election to use either option can be made only once after 1986 by a participant born before 1936. However, beginning in 1995, a participant born after 1935, who has reached age 59½ at the time the distribution is made, may be able to use the 5 year tax option.

Form 4972, Tax on Lump-Sum Distributions, is used to compute the tax on a lump-sum distribution. Its instructions contain detailed information. Refer to Topic 412 which discusses lump sum distributions. Additional material can be found in Publication 575, Pension and Annuity Income (Including Simplified General Rule).

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