Forward Averaging


DEFINITION of 'Forward Averaging'

Treating lump-sum retirement-plan distributions as if they occurred over a five- or ten-year period. Forward averaging is available only to qualified plan participants who were born before 1936 and meet certain requirements.

BREAKING DOWN 'Forward Averaging'

This treatment results in the distributions being taxed at a lower rate than the individual's ordinary tax rate.

To be eligible for the capital gains and forward averaging treatment, qualified plan distributions must be in the form of a lump-sum distribution.

Note: The five-year income averaging is repealed for taxable years beginning on or after January 1, 2000.

  1. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  2. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  3. Variable Death Benefit

    The amount paid to a decedent's beneficiary that is dependent ...
  4. Active Participant Status

    Active-participant status is a reference to an individual's participation ...
  5. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  6. Capital Gains Treatment

    The specific taxes assessed on investment capital gains as determined ...
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