Learn how to avoid overpayment penalties from the Railroad Retirement Board.
Welcome, everyone, to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors, and today what we're going to talk about is the commingling of Social Security with your Railroad Retirement Annuity. So a lot of confusion between the two of them. And what happens is that confusion can lead to penalties from overpayment. So I just want to walk you through it. Kind of bring everybody up to speed on what is Social Security? What is Railroad Retirement, the commingling of them, so we can avoid these penalties? And then, at the end, I'll list some of the things that you want to do to avoid these over penalties. So let's just go through it here. So you work for the railroad, you're collecting tier 1, tier 1, tier 2. Tier 1 is a compilation of your Social Security and your railroad service years.
So you might have 30 years of railroad service and five years of Social Security work. Okay? That type of thing. And then, so that's how they get your tier 1 number. Now, how they get your Social Security number is just nonrailroad work years. So going back to this example, it might be 30 years at the railroad and five years at McDonald's or something. So your Social Security would really just be based on your five years at McDonald's, which wouldn't be much. So that's how that works, tier 1, tier 2. Let me give you an example. Let's say there's a railroader, and they're going to get $3,000 a month on their tier 1. Right? So that's going to be made up of their Social Security and the railroad service years. But when they get their Social Security statement, it says, oh, I get $1,500 in Social Security. So now they're thinking, oh, I get $4,500. Doesn't work that way.
So what happens is Social Security notifies the Railroad Retirement Board, hey, this individual is supposed to get $1,500 of Social Security. And they say, okay. Railroad Retirement Board goes, great. They're supposed to get $3,000. They take out the $1,500, and your monthly payment is going to be $3,000. Tier 1 is going to be the combination of Social Security and railroad retirement service. So it's not $4,500. So that's called double-dipping, and you can't do that. So that takes care of that. So tier 1 reductions also apply, and this is where everybody starts getting a little messed up here, is in your spousal annuities, your divorced spouse annuity, and your survivor annuities also. So if your spouse is outside working in another position and he or she is doing great, and all those type of things, but yet are still going to collect railroad retirement, because, through the tier 2 and stuff, you can watch out for those overpayment issues there. So that's where you have to really watch it.
So Social Security law limits payment to the higher of any two or more benefits payable. So you can't get, in this case, oh, I get my Social Security payment. I'm going to get that, and I'll also get my spousal annuity from the Railroad Retirement Board. Nah, it doesn't work that way. The higher of any two or more benefits payable, right? So, in this case, with the spouse, let's just say she. She would have a Social Security check, and then she's also saying, oh, I'm going to get the tier 1 spousal also. And those are two. No. You get the higher of the two. Hopefully, I've explained that to you, higher of the two.
So what do we want to take away from this? Railroad Retirement Board is king. That's the simplest way to do it. So what does that mean? Notify the Railroad Retirement Board when filing for Social Security. Anytime that you feel like, hey, I'm going to get something from Social Security, you have to let the Railroad Retirement Board know, okay? So, in this case, let's say you're a spouse and you're retiring, but you're eventually going to get a spousal annuity from the Railroad Retirement Board, let them know. Always notify the Railroad Retirement Board. I would even document it that much. Write down the name of the individual you spoke to. Because what we're trying to do is to avoid the overpayment and the penalties that come associated with it. So do that, and that will help you avoid the overpayment.
So hopefully, I've kind of enlightened you a little bit about how Social Security and the Railroad Retirement Board work together. Feel free to reach out to me if you have any questions. If you're nearing retirement and you want to understand this a little bit more, I have a Boarding for Railroad Retirement process. That free process will help you understand, as you get closer to retirement, exactly how these will interchange, so to speak. So everyone, please subscribe to YouTube channel, click on the notification bell down in the corner, and that will notify you of any new and exciting videos coming up. So until next time, everyone, please stay safe. Stay on track. Take care. So long, everybody. Bye.
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.