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What Doesn't Count as Earnings in Railroad Retirement? Thumbnail

What Doesn't Count as Earnings in Railroad Retirement?

Video Retirement Financial Planning


Do you plan on working in Railroad Retirement? Learn what you can earn without getting deductions.

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 working in retirement and specifically, we know there's deductions. This is assuming you're collecting your Railroad Retirement annuity and you're before your full retirement age, there are going to be deductions for working in Railroad Retirement. Let's go through this. I'll show you just some background information on the deductions and then I'll show you what earnings won't count, importantly won't count for those deductions.

On your tier one, Railroad Retirement tier one, tier two, the deductions on tier one are anything between 62 and full retirement age. Now note, if you're one of those railroaders, who's 60 and has 30 years, this can go all the way back to 60. These are Social Security rules. $1 for every $2 over $19,560, this is the 2022 number. If you're watching, adjusts every year. And then in your full retirement age, so that one year during your full retirement age, it's $1 for every $3 up to 51,960. And then at full retirement age and over, there is no deductions on your tier one portion of your Railroad Retirement annuity.

Now on your tier two, this gets a little more confusing. This has to do with your last previous employer. Let's see if I can give you an example, make it nice and simple. Let's say you left the railroad at 57. You had 30 years, you say, "I'm done, I'm leaving at 57." And during those three years you go work. You work for Home Depot, you collect your annuity at 60 and then you continue to work for Home Depot. That's called your last previous employer, non-railroad employer. It's only about non-railroad employer. There, you're going to lose $1 for every $2 of your tier two up to 50%, assuming you're working for your last previous non-railroad employer. Those are the deductions. We know that.

Now, what counts as earnings? Well, we know wages counts as earning, but what doesn't count? Unemployment compensation does not count. Pension income, this is important, some railroaders have pensions, that won't count as earnings and neither will the tier two, which is a kind of an ordinary income type pension. The way I look at it, that won't count. Those don't count on there. Rental property is a very good one. Remember for those following the whiteboard session, I did one on the Augusta rule, the 14 days of free rental income. Rental property, that won't count. That's interesting. IRA distributions. And that's also 401(k) distributions, anything out of a tax deferred account that you're over the threshold, over 59 and a half, that type of thing or 55, depending upon the 401(k), IRA, but those types of distributions, those are not earnings. Alimony is not earnings. And then the other big one is a spouse's earnings. Because you're saying, "Well, I'm married, file jointly, that type of thing. Maybe that's going to count." Maybe my spouse is making a significant income. Will that affect my deductions? No, it's spouse earnings don't account.

It's basically what you're taking home from wages is what's going to count or if you're self-employed, you have some sort of business there. But those are important. Those are the earnings that don't count. Understand those. I hope you found this video very helpful. I know some of you will be working Railroad Retirement for sure. Reach out to me, if you want to go through the boarding for Railroad Retirement process, really great process. Get the assessment. If you're nearing railroad retirement or even just starting it to understand exactly what Railroad Retirement looks like. You might not even need to go back to work if you don't want to, it's up to you.

Please subscribe to the YouTube channel. It's growing, it's doing well. I really appreciate that. Click on the notification bell to get the latest whiteboard video that comes out. And 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.