A qualified retirement plan is a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan
If you made after-tax contributions to your pension or annuity plan, you can exclude part of your payments from your income.
Determine the tax-free amount based on when your payments first began. This amount will always be the same, even if your payment amount changes.
Use the Simplified Method to figure the tax-free part of the payments if:
The Simplified Method Worksheet helps you figure the taxable and tax-free parts of your annuity payments each year.
Determining the taxable portion of an annuity requires that you determine the amount of your contributions that have been recovered in all prior years so that your exclusion does not exceed your contributions. This has to be recomputed each year.