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What Taxes Can I Expect in Railroad Retirement? Thumbnail

What Taxes Can I Expect in Railroad Retirement?

Tier 1 Tier 2 Retirement Taxes


The tax man is going to come in railroad retirement learn what you are expected to pay.

Welcome everyone to the, another edition of the Highball Advisors railroad retirement whiteboard. My name is John McNamara of Highball Advisors. And today we're going to talk about taxes exciting right in retirement. So you're retired from the railroad or you've worked for the railroad, but you're do a railroad retirement annuity. And now it's a time for taxes, uh, not only on your annuity, but other things as you, uh, go through retirement, right? So usually one of your biggest expenses in retirement and you know, outside healthcare, that's a big one. So I want to go through this here. So we'll start over here on my right is the railroad retirement annuity. All right. So this gets a little tricky, it's kind of two parts. So you have social security rules for part of it. And the other part, you have what they call non social security and S S E B, but basically it's just ordinary income.

So for you railroaders, I can retire at 60 with full retirement benefits from 60 62, that tier one portion gets taxed as ordinary income. Okay. Then at 62, you fall into social security rules. Okay. And how that's going to work is they're going to take your modified, adjusted, gross income, which is basically your adjusted gross income, uh, less your taxes and interest income, uh, then plus 50% of your tier one. Okay. They're going to add that up and see where that is. And if it's under $32,000, right. The whole year you've with everything, it's under 32,000, there's no taxes. Okay. However, if it's between 32 and 44, they're going to tax 50% of it. So they're going to take 50% of that amount. And then, um, uh, you know, put the ordinary income rate on that. And then , 44,000 up 85% of that, uh, can be taxed.

Okay. Uh, so it's important to get your modified, adjusted, gross income if you want to do this math at home. So the important part is there is taxations. Here's the levels. And here's what you want to think about it. All right now on your tier two portion, right? Which is significant for a lot of railroaders, that's get taxed as ordinary income. They treat it as pension income. So that's going to get taxed there. All right. Now, as we move along here, right? Where else are we getting retirement? Uh, income from is may 401ks and IRAs, right? You've been doing some retirement planning all these years. So when you withdraw the money out, it gets taxed at ordinary income. All right. So may some people might say, well, I don't really need a to withdraw anything from my 401k. I'll just leave it in there. It doesn't work that way, right?

The government gave you a tax deferred. Uh, uh, they never taxed it. When I went in now they want their money. So they'll come with what they call required. Minimum distribution, otherwise known as an RMD. And that starts at the age of 72, where you have to start taking money out of your, uh, out of your 401k or IRA. And then that gets taxed at ordinary income. There's certain amounts that you have to take out every year. There's a formula for it, but they want that money emptied out, um, in order to get taxed. And then obviously if something unfortunate happens to you before you can empty the whole thing out, then your beneficiaries will be emptying it out. But one way or another, the government will get their tax money for it. And there's a lot of different strategies here based off your tax rates that you can do to minimize those taxes.

But we'll leave that for another video. All right. And then the other one is a pension, right? Some of you might be having a pension, all right. And you can take monthly payments from your pension, uh, and those go throughout your life. And those get taxed at ordinary income tax rates. So depending upon your rate, uh, that's where your taxes are going to be. So I hope you found this helpful to really kind of understand where, what the taxes are. And now remember, these are, uh, especially with your railroad retirement annuity people, right? This is different than deductions that I did in another video, uh, that could happen for people working in railroad retirement, right? This is just income tax. Okay. This is what we're talking about here. So I hope you found this helpful, feel free to reach out to me. If you have any questions, you know, uh, look at that boarding for a railroad retirement process, really good for people who are nearing retirement to think about what that roadmap looks like. Okay. Uh, I think you'll get that very beneficial process there as always, please subscribe to my YouTube channel down in the lower right-hand corner of your screen, click on that channels go growing. Great. So that's good to see and then click on the bell for notifications. All right, everyone, until the next video on, please, everyone 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.