Retirement contributions/tax question

[dave123]

I'm retired. I just got my book "Your Federal Retirement Benefits."

I don't understand Page 12 in my book "Contributions an tax information."

For those who don't have a book handy (likely most), here is what it says:

The amount of retirement contributions to your credit is $19,796. This amount includes the deposit made to cover military service.

NOTE: 19,796 is less than my yearly annuity.

If the total amount of retirement benefits paid to you is less than the amount of your retirement contributions plus interest, the difference will be paid to your survivors or estate as a lump sum. Once you receive gross monthly benefits that exceed your contributions, there are no more contributions in your account, and no lump sum payment is made. You continue, however to receive your monthly annuity even when your benefits paid exceed your contributions.

Rather than toss out my guesses and thoughts, I'll just request that someone decipher this for me.

Thanx in advance.

 

[evilanne]

That is the amount that they took out of your paycheck each paycheck - the 0.8% is aftertax dollars so when you get your retirement 1099-R the portion attributable to your FERS contribution is not taxable (similar to Roth but it doesn't earn anything). It should be on you 1099R each year for however many years until it is all used up and then everything will be taxable. IRS has formula to figure it out based on your age/method. Tax program should come up with the same thing.

 

[dave123]

Thank you evilanne!

I'm still confused. So a portion of this will be a tax credit (for years)?

 

[evilanne]

Yes, depending on your age when you retire, it can range from 15 to 30 years. If you are married, spouse's age may be a factor. I wouldn't worry about trying to understand it since you retired recently it should be calculated automatically by OPM. If you have some strange situation, the tax programs will walk you through it if there is not an amount in Block 2 of the 1099-R. If you want to understand it or get more confused see https://www.irs.gov/publications/p721
Happy Trails

 

[dave123]

Thank you very much.

It appears I can just ignore this, which is great news.