Updated November 5, 2026. Quick answer: Worksheet E in Publication 721 (2025) finds the taxable part of the lump sum paid to an estate or other beneficiary when a deceased retiree has no survivor annuity and the annuity ended before the retiree’s contributions were paid out. The lump sum plus the annuity the retiree received tax free, less the total cost, is the taxable amount, and it is rarely above zero.
When Worksheet E applies
The publication describes the case: “If a deceased retiree has no beneficiary eligible to receive a survivor annuity, and the deceased retiree’s annuity ends before an amount equal to the deceased retiree’s contributions plus any interest has been paid out, the rest of the contributions plus any interest will be paid in a lump sum to the estate or other beneficiary.” It adds “The estate or other beneficiary will rarely have to include any part of the lump sum in gross income.” “The taxable amount is figured by using Worksheet E.” The case where a survivor annuity ends first is on Worksheet D.
Lines 1 to 5
| Line | What it asks |
|---|---|
| 1 | “Enter the lump-sum payment” |
| 2 | “Enter the amount of annuity received tax free by the retiree” |
| 3 | “Add lines 1 and 2” |
| 4 | “Enter the total cost” |
| 5 | “Taxable amount. Subtract line 4 from line 3. Enter the result, but not less than zero.” |
The paragraph under the worksheet: “The taxable amount, if any, generally can’t be rolled over into an IRA or other plan and is subject to federal income tax withholding at a 10% rate.” The one exception to the rollover bar is a nonspousal beneficiary making the transfer the publication describes under its Rollover Rules. It also notes that “the payment may qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option if the plan participant was born before January 2, 1936.”
What the publication does not print
Publication 721 (2025) prints no worked example for Worksheet E, unlike Worksheets A to D. The two illustrations below are invented, labelled, and computed from the five lines as printed.
Examples with invented numbers
Illustration, not an IRS example. The first is the common result, a lump sum and tax-free annuity that together stay below the total cost.
| Line | Entry | Amount |
|---|---|---|
| 1 | Lump-sum payment (invented input for the computed lines below) | $9,000 |
| 2 | Annuity received tax free by the retiree (invented) | $31,000 |
| 3 | Lines 1 and 2 added (computed) | $40,000 |
| 4 | Total cost (invented) | $45,000 |
| 5 | Line 3 minus line 4, not less than zero (computed) | 0 |
Line 3 is $40,000, below the $45,000 cost, so line 5 is zero.
Illustration, not an IRS example. The second is a larger lump sum, which includes interest, so the total passes the cost.
| Line | Entry | Amount |
|---|---|---|
| 1 | Lump-sum payment (invented input for the computed lines below) | $16,000 |
| 2 | Annuity received tax free by the retiree (invented) | $33,000 |
| 3 | Lines 1 and 2 added (computed) | $49,000 |
| 4 | Total cost (invented) | $45,000 |
| 5 | Line 3 minus line 4, not less than zero (computed) | $4,000 |
Line 3 is $49,000, which is $4,000 more than the $45,000 cost, so $4,000 is the taxable amount.
Voluntary contributions and the TSP
The publication sends two related items elsewhere. Of voluntary contributions it says “Figure the taxable amount, if any, of a lump-sum payment of the retiree’s unrecovered voluntary contributions plus any interest” with the same rules as regular lump-sum CSRS or FERS payments. A Thrift Savings Plan payment is separate: “the payment is fully taxable except for the portion that is from Roth contributions and earnings if certain conditions are met.” See TSP beneficiary rules.
Edition
This page reads Publication 721 (2025), Tax Guide to U.S. Civil Service Retirement Benefits, the file irs.gov served on 2026-11-05). Line numbers and letters belong to that edition, so check the label printed on the worksheet in your own copy before you follow a line reference.
Common mistakes
- Leaving the retiree’s tax-free annuity off line 2. It is added to the lump sum before the total cost is subtracted.
- Entering a negative number on line 5. The sheet says not less than zero.
- Using Worksheet E when a survivor annuity was paid first. That case is Worksheet D.
- Treating the TSP balance as part of this lump sum. The publication treats a TSP payment separately.
Related: Publication 721, inherited 403(b) and TSP rules, and FERS survivor benefit election.
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Answer againSources
- Publication 721 (2025), Tax Guide to U.S. Civil Service Retirement Benefits: https://www.irs.gov/pub/irs-pdf/p721.pdf
- IRS, About Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits: https://www.irs.gov/forms-pubs/about-publication-721
Read from the IRS documents linked above on November 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.