How are 60 and 30 Annuities Taxed in Railroad Retirement?

Transcript:

Congratulations on your 60 and 30 Railroad Retirement Annuity. Now learn how it's going to get taxed.

Welcome everyone to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors. And today, we're going to talk about the 60 and 30 annuity, right? Those railroaders that are 60 years old and 30 years of service, right? How is that annuity taxed? Right? What should they be looking at as far as from an IRS perspective? So just to give you a little background information on the 60 and 30, right? 60 years old and 30 years of railroad service. And what's nice about it also is it's not only for the employee, it's also for the spouse too, right? 60 and 30. This is kind of like a double dip almost.

So that's what I'm talking about. The 60 and 30 Railroad Retirement Annuity, all right? So let's step over this way, excuse me. So you can get at 60, right? Before the railroader is 62, right? No reductions for age, right? That full retirement age is now 60. However, because the social security rules haven't applied, that amount of money is now considered non-social security equivalent benefit. What I'm talking about here is the tier one part of the annuity, right? NSSEB. If you ever see that, that's what they're talking about. So tier one plus tier two is now fully taxable, all right? There's no social security taxation rules apply. So that's going to be treated as ordinary income or pension income. And that's going to get taxed, all right? So that's fully taxable.

And what you'll do is you'll get a form, the 1099-R, until the age of 62. This is the way you're going to get. So that's just fully taxable before 62. Now the trick here is as we get to 62 and above, it starts to get a little more complex. And this is what I'll walk you through here. So now you're split between the social security payment, SSEB, and the non-social security payment, all right? So the social security rules kick in at 62. So remember, always think about Railroad Retirement. They're still using those social security rules at 62. So you have to kind of know social security also, those rules. So tier one is going to be social security benefit and the non-social security equivalent benefit. So let me just give you an example.

So at 62, the 62 portion of it is going to be the social security equivalent benefit of it. And then, that's going to be the 30% reduction amount that you would normally get if you weren't a 60 and 30. And then the top up, up to full retirement age that you're actually getting, which is the benefit of working for the railroad is going to be the non-social security equivalent benefit, all right? These numbers adjust every year, okay? Until you get up until 67. And then it's going to be all social security equivalent benefit payment, right? So it moves every year, so to speak. Think of this as the top up from 62 and above, right? So every year, this is going to top up, so to speak. So now you're going to get another form for the social security equivalent benefit called the RRB-1099, all right? So now you have the two forms, one for non-social security benefit and the other.

Now what you have to watch out here, I put in here, is you're going to have that change in withholding, right? So before over here, this was all income. And you can kind of understand that, you put in your withholding. But now remember, there's no withholding of the social security equivalent benefit. And that's going to change. So what you want to do is understand what you should be withholding. So you might want to be filing a new withholding with the Railroad Retirement Board, because if you don't, you're going to get surprised around tax time, because you're going to be getting this tier one part, the social security that hasn't been taxed. And they're going to hit you on that around tax time. So you got to really work through that part. I think it's the W-4 part does the withholding. And work with the Railroad Retirement Board on that.

So I just wanted to bring this to everyone's attention, especially the railroaders down the 60 and 30. Understand the taxation part, right? There's the two part, the ordinary income, and then when social security rules kick in. It can get a little tricky, but you want to understand what your taxation's going to be, right? Big part of retirement is taxes. I say it all the time. So reach out to me if you want to have a discussion about this. Or if you're nearing retirement, you want to go through the boarding for Railroad Retirement process, I go through a lot of topics like this in that process. Please subscribe to YouTube channel. I appreciate that. Share this with other railroaders, especially those getting in retirement or getting close to it. This is good info for them. All right? Until next time, everyone. Please stay safe. Stay on track. And take care. So long everybody. Bye.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.