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IRS Tax Topic 411: Pensions: General Rule, Simplified Method

Updated October 24, 2026. Quick answer: Tax Topic 411 is the IRS page on how to split pension and annuity payments into a taxable part and a tax free part. Which method applies depends on the plan: nonqualified plans use the general rule, and payments from a qualified retirement plan generally use the simplified method. The tax free part is figured when payments first begin.

Quick reference

ItemWhat the IRS topic says
When part can be excluded“If some contributions to your pension or annuity plan were previously included in gross income, you can exclude part of the distributions from income.”
When to figure it“You must figure the tax-free part when the payments first begin.”
Does it change each year“The tax-free part generally remains the same each year, even if the amount of the payment changes.”
Nonqualified plans“If you receive annuity payments from a nonqualified retirement plan, you must use the general rule.”
Qualified plans“Generally, if you begin receiving annuity payments from a qualified retirement plan, you use the simplified method to figure the tax-free part of the payments.”

The tax free part and the cost limit

The topic starts with the idea that some of a pension or annuity payment may not be taxed. It says “you can exclude part of the distributions from income.” It adds that the timing matters: “You must figure the tax-free part when the payments first begin.”

There is also a ceiling on how much can be excluded over time. The topic says “the total amount of your pension or annuity that you can exclude from income is generally limited to your total cost”. It notes that total cost is “sometimes referred to as “basis” or “investment in the contract””. For how to determine that cost, the topic refers readers to Publication 575, Pension and Annuity Income.

The general rule

The general rule is tied to the type of plan. The topic says “If you receive annuity payments from a nonqualified retirement plan, you must use the general rule.” On how it works, it says “you figure the taxable and tax-free parts of your annuity payments using life expectancy tables that the IRS issues.”

The topic mentions an IRS service for this step: “For a fee, the IRS will figure the tax-free part of your annuity payments for you.” Further reading is named as Publication 939, General Rule for Pensions and Annuities.

The simplified method

For qualified plans the topic names the other approach. It says “Generally, if you begin receiving annuity payments from a qualified retirement plan, you use the simplified method to figure the tax-free part of the payments.” It defines the plan type this way: “A qualified retirement plan is a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract”.

The work is done on a worksheet. The topic says “you figure the taxable and tax-free parts of your annuity payments by completing the Simplified Method Worksheet in the Instructions for Form 1040 (and Form 1040-SR) or in Publication 575.” For United States Civil Service retirement benefits, it points to Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits. Our page on Form 1040 lines 5a and 5b shows where the results land on the return.

Where this comes from

This page describes the IRS page titled Topic no. 411, Pensions: The general rule and the simplified method, as served on irs.gov on October 24, 2026. The IRS page shows that it was last reviewed or updated on 24 Sep 2026. The IRS can change a topic after we read it, and the IRS page controls. General information, not tax or legal advice.

Common mistakes

  • Assuming one method fits every plan. The topic ties the general rule to “a nonqualified retirement plan” and the simplified method to “a qualified retirement plan”
  • Expecting to redo the split every year. The topic says “The tax-free part generally remains the same each year, even if the amount of the payment changes.”
  • Thinking the exclusion can run forever. The topic says it is “generally limited to your total cost”
  • Treating the IRS fee service as automatic. The topic says “For a fee, the IRS will figure the tax-free part of your annuity payments for you.”

Related: IRS tax topics by number, Form 1040 lines 5a and 5b, Is a pension annuity eligible for rollover, 1099-R box 2a taxable amount, 1099-R boxes 9a and 9b, and 1099-R boxes explained.

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Sources

Read from the IRS pages linked above on October 24, 2026. General information, not tax or legal advice. The IRS topic page and the instructions for your own form control, and your own facts decide the outcome.

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