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VIDEO: Railroad Retirement and Federal Income Taxes



Transcript


Welcome everyone to the Railroad Retirement Whiteboard. My name is John McNamara with Highball Advisors. Today, we're going to talk about your railroad retirement, your annuity, and the federal income taxes associated with it. It's not really a conversation about rates. It's more about the process of taxation on your railroad retirement annuity. It's not a must-know subject, but it's a nice to know subject to understand how things are getting taxed on your railroad retired annuity.

So, if you're a retiree currently, you're getting one monthly payment right now. Every month, as one check comes from the Railroad Retirement Board. But inside that check, there's two numbers that are generating that monthly check that you're getting, that amount. First one is your tier one benefit, okay? Actually, it's referenced as a social security equivalent benefit payment. That's the tier one. And then your tier two, which would be cleverly named your non-social security equivalent benefit. That's your tier one. So, tier one, tier two, right? Those two numbers making up your monthly railroad retirement annuity number.

Now, it comes that January's coming along, right? You're now going to receive forms from the Railroad Retirement Board, or the IRS actually, and they're going to want to get the taxes on that. So, even though you were getting one monthly benefit on your retirement, you're going to get two forms, right? And each form's going to represent the tier one and tier two. On your tier one, you're going to get a form, RRB, Railroad Retirement Board, obviously, 1099. And then on your other ... The other form's going to be form Railroad Retirement Board 1099-R, and that's going to represent your tier two portion of your railroad retirement annuity.

Now, your tier one gets taxed, right? That's why it's social security equivalent because it didn't get taxed as a social security benefit, right? And to understand that taxation formula, you can go check out my previous videos, Taxes on Your Railroad Retirement Annuity. Check that video out. I have it on YouTube, and that will walk you through the rates and how all that's calculated, right?

Then on your second part, the tier two gets taxed as a pension. So basically, as income. It's income to you, so that's a different taxation rate. Now, what's interesting, especially for you new retirees, the Golden Ticket people, as I like to call them, the 60 and 30 people, right? From 60 to 62, even though you're collecting early retirement, all that gets taxed as a pension. It's pension income, so income. And because your SSEB, social security equivalent benefit doesn't kick in until 62, so I thought that was interesting. That all kicks in at 62 [inaudible 00:03:20]. But from 60 to 62, it's all income. So, that's something to think about.

Then a couple things I like just to highlight, also, is on form RRB 1099-R, just box three, employee contributions. So, you see that? IRS treats that, it's not as a payment, it's actually they consider it an investment in there. So, I just like to bring that up because sometimes you see these boxes and you don't know what they mean. But, that's basically your tier two investment. You're investing in your annuity, your railroad retirement annuity. So, that's box three

And then one other thing for you retirees 65 and up, those on Medicare, other thing I like to note on both forms. On your RRB 1099, your box 11, your Medicare, that will show you how much has been taken out of your railroad retirement annuity for Medicare. But sometimes, it's interesting, sometimes it's not on this form, it will be on the 1099-R and it will be in box 10. So, if you don't see it on one form, make sure you have it on the other. Just confirm that it's in there for you people on Medicare, and you better be on Medicare at 65 and older. It's the greatest deal going.

All right, so I hope that was helpful. It's just kind of in the weeds, little minutia stuff. But as you get your taxes done, I don't know if you do them yourself or Turbo Tax or if you have a CPA, everybody's throwing around these numbers and things like that. It's important to understand what all this stuff means. So, I hope that helps you out.

Please subscribe to my YouTube channel. I'll continue to keep posting videos. Getting great feedback. I'm sure a lot of people are enjoying them, finding them helpful. Reach out to me. I do some free meetings. If you have some issues you want to talk about. I don't do tax preparation. I'm just telling you that straight out. I don't do that. I like to understand about it, but I don't do preparation. That's a different breed of people. But you can reach out to me, free meeting, we'll talk about some tax planning issues or retirement planning, that type of thing.

In the meantime, everyone, please stay safe and 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.