How Career Railroaders Can Avoid a Big Tax Bo;; om Railroad Retirement

Railroaders, beware of a potential tax pitfall when claiming your railroad retirement benefits. Welcome to another installment of the Highball Advisors Railroad Retirement whiteboard. I'm John McNamara from Highball Advisors, and today's focus is particularly crucial for those starting their annuity at 60 after completing 30 years of service—a detail that requires careful attention to avoid facing a hefty tax bill come April.

Between the ages of 60 and 62, most individuals can initiate their social security benefits. However, for railroad employees with 30 years under their belt, a unique scenario unfolds. During this period, you become eligible to receive what's termed a Non-Social Security Equivalent Benefit (N-S-S-E-B). This necessitates an end-of-year RRB 1099-R form detailing payments under this category, with withholding managed through IRS Form W-4P.

Excitement often accompanies the decision to kick off your railroad retirement at 60. However, complications arise as you reach 62 when shifts in tax laws and social security come into play. Now, a portion of your retirement annuities, particularly the tier one portion, falls under the Social Security Equivalent Benefit (SSEB). This triggers the need to file Form W-4V. Consequently, you'll receive both an RRB 1099 and 1099-R at year-end.

Let's delve into an illustrative example: Imagine a railroader receiving $3,000 monthly in tier one and $1,500 in tier two, with no inflation adjustments considered. At 62, $2,100 of the tier one sum becomes subject to SSEB, while $900 remains as non-social security equivalent benefit. Tier two retains its non-social security equivalent benefit status.

Failure to file Form W-4V could lead to unforeseen tax liabilities. For instance, if $2,100 isn't withheld and you face a 12% tax rate, you could owe $302.40 come tax season—a sum for income that was never collected due to the oversight.

Avoid surprises in April by ensuring the correct filing of necessary forms. Don't overlook communication from the Railroad Retirement Board; it contains vital information to prevent tax-related shocks.

If you're nearing retirement and seeking guidance on the tax implications, reach out to us. Our railroad retirement process covers essential tax considerations. Subscribe to our channel for more insights and updates. Until next time, stay informed, stay financially secure, and take care. Goodbye, everyone!

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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.