Updated November 5, 2026. Quick answer: Worksheet A in Publication 571 figures the cost of the incidental life insurance inside a 403(b) annuity contract: the death benefit minus the cash value, divided by $1,000, times a 1-year term rate for your age from Figure 3-1. Only an annuity contract with a life insurance component needs it; line 7 comes off your includible compensation on Worksheet B.
When Worksheet A applies
The publication says “Includible compensation doesn’t include the cost of incidental life insurance.” It also says “If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance.” For an annuity contract: “Not all annuity contracts include life insurance. Contact your plan administrator to determine if your contract includes incidental life insurance.” “If it does, you will need to figure the cost of life insurance each year the policy is in effect.”
The cost is taxable: “If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed.” “Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2.” That box is explained on the Form 1040 line 1a page.
Lines 1 to 7
| Line | What it asks |
|---|---|
| 1 | “Enter the value of the contract (amount payable upon your death)” |
| 2 | “Enter the cash value in the contract at the end of the year” |
| 3 | “Subtract line 2 from line 1. This is the value of your current life insurance protection” |
| 4 | “Enter your age on your birthday nearest the beginning of the policy year” |
| 5 | “Enter the 1-year term premium for $1,000 of life insurance based on your age. (From Figure 3-1)” |
| 6 | “Divide line 3 by $1,000” |
| 7 | “Multiply line 6 by line 5. This is the cost of your incidental life insurance” |
Line 3 matches the publication’s own definition: “Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year.”
Figure 3-1 and the lower-rate caution
Line 5 comes from Figure 3-1, “Table of 1-Year Term Premiums for $1,000 Life Insurance Protection”, which prints one cost per age. In the January 2026 edition the figure prints $1.40 at age 44 and $1.53 at age 45. The table is set in three side-by-side age and cost column pairs, so check that a rate sits on the row of your own age. The publication adds one caution: “If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer.”
Read the rate for your own age from the printed Figure 3-1 in the publication; this page prints only the two rates the IRS uses in its examples. The same group-term idea, for employer coverage outside a 403(b), is on the Pub 17 group-term worksheet page.
The IRS examples, line by line
The publication’s Example 1 reads “An employee, age 44, and the employer enter into a 403(b) plan that will provide the employee with a $500 a month annuity upon retirement at age 65.” The death benefit is “the greater of $20,000 or the cash surrender value in the life insurance contract”. Table 3-1 fills the worksheet in this way, and the publication concludes “The employer has included $28 for the cost of the life insurance protection in the employee’s current-year income.” For includible compensation, “the employee will subtract $28.”
| Line | Entry | Value |
|---|---|---|
| 1 | Value of the contract, the amount payable on death (IRS example) | $20,000 |
| 2 | Cash value at the end of the year (IRS example) | $0 |
| 3 | Line 1 minus line 2 (computed) | $20,000 |
| 4 | Age on the birthday nearest the beginning of the policy year (IRS example) | 44 |
| 5 | 1-year term premium for $1,000 at that age, from Figure 3-1 (IRS example) | $1.40 |
| 6 | Line 3 divided by $1,000 (computed) | 20 |
| 7 | Line 6 times line 5 (computed) | $28.00 |
Line 7 is $20 times $1.40, or $28.00 (computed).
Example 2 moves one year on, with “The employee’s cash value in the contract at the end of the second year is $1,000.” The IRS result: “In year 2, the employer will include $29.07 in the employee’s current-year income.” “The employee will subtract this amount when figuring the includible compensation.”
| Line | Entry | Value |
|---|---|---|
| 1 | Value of the contract, the amount payable on death (IRS example) | $20,000 |
| 2 | Cash value at the end of the year (IRS example) | $1,000 |
| 3 | Line 1 minus line 2 (computed) | $19,000 |
| 4 | Age on the birthday nearest the beginning of the policy year (IRS example) | 45 |
| 5 | 1-year term premium for $1,000 at that age, from Figure 3-1 (IRS example) | $1.53 |
| 6 | Line 3 divided by $1,000 (computed) | 19 |
| 7 | Line 6 times line 5 (computed) | $29.07 |
Line 7 is 19 times $1.53, or $29.07 (computed).
One more example with invented numbers
Illustration, not an IRS example. A contract pays $50,000 on death, with a $10,000 cash value at the end of the year, and the employee is 44. The rate is the age 44 rate from Figure 3-1.
| Line | Entry | Value |
|---|---|---|
| 1 | Value of the contract, the amount payable on death (invented) | $50,000 |
| 2 | Cash value at the end of the year (invented) | $10,000 |
| 3 | Line 1 minus line 2 (computed) | $40,000 |
| 4 | Age on the birthday nearest the beginning of the policy year (invented) | 44 |
| 5 | 1-year term premium for $1,000 at age 44, from Figure 3-1 | $1.40 |
| 6 | Line 3 divided by $1,000 (computed) | 40 |
| 7 | Line 6 times line 5 (computed) | $56.00 |
The cost of the insurance is $56.00 (computed). It goes on line 8 of Worksheet B, where it reduces includible compensation.
Edition
This page reads Publication 571 (Rev. January 2026), Tax-Sheltered Annuity Plans (403(b) Plans), the file irs.gov served on 2026-11-05. Worksheet titles, line numbers and dollar amounts belong to that edition, so check the label printed on the worksheet in your own copy before you follow a line reference. Chapter 3 of the publication carries the two filled-in examples quoted above.
Common mistakes
- Running Worksheet A for a plan that invests only in mutual funds. The publication says there is no incidental life insurance in that case.
- Using the full death benefit on line 3. Line 3 is the death benefit minus the year-end cash value.
- Reading the wrong age column in Figure 3-1. The table has three side-by-side age and cost pairs, so check that the rate sits on the row of your age.
- Forgetting to carry line 7 to line 8 of Worksheet B, which is the only reason to figure it.
Related: Publication 571, the 403(b) contribution limit page, and the 403(b) contract exchange page.
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Answer againSources
- Publication 571 (Rev. January 2026), Tax-Sheltered Annuity Plans (403(b) Plans): https://www.irs.gov/pub/irs-pdf/p571.pdf
- IRS, About Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans): https://www.irs.gov/forms-pubs/about-publication-571
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.