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Where Do My Hard Earned Railroad Retirement Taxes Go? Thumbnail

Where Do My Hard Earned Railroad Retirement Taxes Go?

Tier 1 Tier 2 Video Annuity Retirement Taxes


Where does that money go out of your paycheck for railroad retirement?

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 money coming out of your paycheck for those railroad retirement taxes. You see it come out the tier I, tier II taxes. All right. Big part of people's paychecks. So where's it go? What happens to that money? So the tier I portion is similar to social security and Medicare, and I'll put that to the side. So no matter if you worked in the railroad or non railroad, you're always going to pay that taxes. It's other piece that's significant, the tier II portion.

So what happens is the money comes out of your paycheck, and then what It goes into the National Railroad Retirement Investment Trust, or, NRRIT... No, I made that up. National Railroad Retirement Investment Trust, they're the ones that managed the money. It was founded in 2001, I think it became active 2002, set up by Congress, by the Railroad Retirement and Survivor's Improvement Act. That established it. And basically what their charge is, is take this money and invest it like normal retirement plan. So if you look at social security right now, all they do is they take the money and they just buy government debt. So it like cycles itself. And that's the only thing they social security is allowed to invest in.

But under this plan, like a normal company retirement plan, you can invest stocks, bonds, assets, private equity, real estate, all those type of things. So that's their charges. Here's the railroad's money, go invest it, grow the money, pay out the benefits. The tier II benefits that we'll talk about in a minute, and who runs it? They have seven trustees and three of them are from labor, three are from management, and one is independent. And they'll come up with the like the "investment policy statement," how should we invest it? Who should invest it? So they hire outside managers. These individuals, they don't manage the money, but they go pick the managers out to go to invest that money.

So what do they do with the trust fund money? So you have the tier two that I have talked about. That big part of one of the great benefits of railroad retirement, but also they'll pay out the non-social security equivalent benefit tier I portion, which is basically that supplemental type of income. So a railroad who has 30 years can retire at 60, but it will make them look like him or her at their full retirement age, at 67. So they have to cover that difference, and that's with a non-social security equivalent benefit. So that also comes out of the trust fund. And then also supplemental annuities also come out of there also.

So that's a big piece. That's a lot of money. So in 2002, they transferred over 20.7 billion into this trust fund. And over that time they have paid out 31.7 billion to railroads during that time. And currently at the end of September of '22, the fiscal year, they have 24.9 billion. So you say, "Geez, it's only almost 5 billion," but they've paid out 31 billion. So they've done very well for themselves running this very efficiently for sure. However, most individuals, I'm sure everyone who has a 401(k), the 2022 performance wasn't that great. It was down a little over 13%. It was a tough year in the markets. No place really to hide, especially for big pension funds like this.

So anyway, I thought I just do this video to show you where your taxes would go. So they're safely invested with your trust fund here, and it's independent. It's not part of the federal government. So they're not in charge of it. It's an independent agency, that quasi federal government agency and they don't answer to the Railroad Retirement Board. So there you go.

So I hope you found this video helpful. Share it to other people when they come up, "Hey. Where's my money go?" That type of thing, it goes right in here to the National Railroad Entire Investment Trust. So please click on the subscribe button, click on notification bell to get the latest video. 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.