Lump sum distribution recipients should receive Form 1099-R showing the ordinary income and capital gain portions of the distribution. Net unrealized appreciation will also be shown if all or part of the distribution consists of appreciated employer securities. If 10-year averaging is not elected, or the taxpayer doesn’t qualify to use it, the ordinary income portion of the distribution is reported as a fully taxable pension on Form 1040 unless it has been rolled over within 60 days of being received or was transferred directly to an IRA or another eligible plan in a trustee-to-trustee arrangement.

California conforms to Federal treatment, including 10-year averaging based on the 1986 CA tax rates and a capital gain election – but only for participants born before January 2, 1936. The rate for the capital gain election is 5.5% instead of 20%. Use California Schedule G-1.