How Deemed Service Months Can Build a Bigger Railroad Retirement

Ensure you receive your rightful service months for your tier two Railroad Retirement benefits. Welcome to another episode of the Highball Advisors Railroad Retirement Whiteboard. I'm John McNamara from Highball Advisors, and today we're focusing on credited service months, essential for maximizing your tier two benefits in Railroad Retirement.

Accumulating months of railroad service is crucial because each additional month contributes directly to your tier two earnings. While tier one focuses on your top 35 earning years, tier two relies significantly on these service months. Here's how it works:

Every month of active railroad employment or any period in which you're connected to the railroad—whether on leave, furlough, sick leave, or suspension—counts as a credible service month for tier two calculations.

To illustrate, let's consider an example using the 2024 tier two calculation. Up to $125,100 of your annual salary is subject to tier two taxes, which equates to $10,425 per month. For instance, if someone earns $85,240 by May and then goes on a leave of absence, they've earned five months of tier two credits totaling $51,225. After deducting this from the annual cap, they have $30,875 remaining, which translates to approximately 3.01 additional months of tier two credits. The Railroad Retirement Board typically rounds this up to four months, ensuring that even during a leave of absence, the individual continues to accumulate tier two benefits.

It's crucial to track and ensure you receive these deemed service months, especially if you exceed the monthly or annual contribution limits. This proactive approach ensures you maximize your Railroad Retirement benefits.

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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.