It depends. Generally, you will be expected to pay taxes on lump-sum IRA distributions in the year you receive them, and as you have noticed the taxes can be huge.
Here is a fact that weighs in favor of using income averaging: you are likely to pay a much lower amount than you would if you had not opted for income averaging. However, it is important to keep in mind that the income averaging calculations are based on the 1986 tax rates. In 1986, a tax rate of 50 percent was what the highest earners paid. Therefore, if your lump sum is significant, you will not benefit much from income averaging. Also, once you take advantage of the process, you cannot defer taxes on those funds.
The process you used to see how your tax changed is an excellent way to answer your question. Ultimately, it depends on what you want to receive or pay. According to the IRS, you pay the tax only once, for the year in which you receive the distribution, not over the next 10 years. You can elect this treatment only once for any plan participant, and only if the plan participant was born before January 2, 1936.
@hilliarddebbie
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
