Form 4972, Tax on Lump-Sum Distributions

What is 4972?

When an entire balance is paid out of a qualified retirement plan in one tax year, the recipient may qualify to tax it under older, often gentler rules instead of adding it all to ordinary income. Form 4972 computes that tax using the 20% capital gain election for the pre-1974 portion, the 10-year tax option, or both. These methods are generally available only for participants born before January 2, 1936, or their beneficiaries.

Part I of the form screens whether the distribution qualifies at all. The distribution details come from the Form 1099-R the plan issues, and the tax figured here is added to the tax on your income tax return rather than the distribution being taxed as ordinary income.

Who files 4972?

• Retirees who received their entire plan balance in one year and qualify under the age rules
• Beneficiaries of a deceased participant who was born before the cutoff date in the instructions
• Recipients with a pre-1974 plan participation portion eligible for the 20% capital gain election
• Estates or trusts receiving a qualifying lump-sum distribution on behalf of such a participant

How to fill out 4972

1. Answer the qualifying questions in Part I to confirm the distribution is eligible for these special methods.
2. Copy the distribution figures from your Form 1099-R, including the capital gain portion shown in box 3 if any.
3. If you use the 20% capital gain election, compute that tax in Part II.
4. Work through the 10-year tax option in Part III, which taxes the ordinary portion using a separate rate schedule as if received over ten years.
5. Download the PDF, add the Form 4972 tax into the tax line of your return, and attach the form.