How is Age Factor calculated and what is it's purpose?

[Cruzesa]

I receive a 1099-R for my Government pension. On the 1099-R worksheet, I see there is a calculation for an "Age Factor" that appears to, in my case, reduce my taxable income on line 5b of the 1040. 

6    Age (or combined ages) at annuity starting date                          56

7    Age factor (payment months)                                                            310
8    Divide line 5 (Block 9b of 1099-R) by line 7                                    632.64
9    Number of months for which payments were made in 2020      12
10 Multiply line 8 by line 9                                                                        $7,592

This amount is then deducted from my "Gross distribution" in Block 1 of the 1099-R which brings the taxable amount to less than what is in block 2a on my 1099-R by a little over $1,000. What is the purpose of this calculation? How is the "Age Factor" determined?

[JohnB5677]

The age factor is a calculation developed for the California State Teacher's Retirement System.

It calculates the percent of final compensation you are entitled to for each year of service. This percentage is determined by the date you were first hired to perform CalSTRS (California State Teacher's Retirement System) creditable activities and your age on the last day of the month in which your retirement is effective.

[Cruzesa]

Thank you. TT did not ask me if I was a CA teacher (I was not - not a teacher anywhere), so why is it making this calculation? I assume I should make sure this calculation is removed.

[ThomasM125]

You probably made non-tax exempt contributions to your retirement plan. If so, you would see an entry in box 9(b) on your 1099-R form "Total Employee contributions."

You need to enter the age factors to determine how much of the employee contributions to use each year to reduce your taxable income. The longer you are expected to live, the longer you have to stretch the non-taxable distributions out.

[macuser_22]

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@Cruzesa wrote:

Thank you. TT did not ask me if I was a CA teacher (I was not - not a teacher anywhere), so why is it making this calculation? I assume I should make sure this calculation is removed.

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You are looking at the Simplified method worksheet in the forms mode that should not be used to enter date.  I suggest entering it in the 1099-R interview and answer the questions for a pension.  This is probably a CSA 1099-R so be sure to choose the CSA type.

For an explanation of the simplified method as it applies to U.S. Civil Service Retirement Benefits see IRS Pub 721 page 6. and the worksheet page 8.    The "age factor" comes from Tables 1 & 2 on page 8.  For example, if your age is 62, the "age factor" would be either 240 of 260 depending on the annuity start date.

https://www.irs.gov/pub/irs-pdf/p721.pdf

You really should just use the interview mode and let TurboTax figure this out.    If you are not an expert and know the answer to these questions you should not use the forms mode for data entry.  You are on your own in the forms mode.