If you were born before 1936 and meet certain requirements, you may specify the tax treatment of retirement plan distributions using federal Form 4972, Tax on Lump-Sum Distributions. Your choices include:
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The capital gain election, where you pay a 20 percent tax on the capital gain portion of your distribution.
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The 10-year tax option, where you pay tax on the total taxable amount based on a 10-year average.
These choices may reduce your tax from what it would have been if you did not use federal Form 4972 and reported your distribution as ordinary income.
Note: If you qualify for the capital gain or 10-year tax option, you must calculate the tax on your distribution directly on federal Form 4972. Do not report the distribution separately as part of taxable income on your federal return.
