Ask The Experts: Retirement

By Reg Jones

CSRS annuity, other income and taxes

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Q. I plan to retire this year and start my own business. I am CSRS Offset and 55 years old. How will any income I make from my business affect my pension and taxes?

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First-year rule

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Q. In 2012, what were the limitations for self-employment income for the first year of retirement, which was also the first year I received Social Security benefits?

A. You’ll find what you’re looking for at www.socialsecurity.gov/retire2/rule.htm.

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CSRS Offset and taxes

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Q. I’m planning to retire under CSRS Offset in December. Is local, state and federal tax the only tax I will have to pay? No Social Security or Medicare?

A. Social Security and Medicare taxes are only deducted from earnings from wages or self-employment, not other sources of income, such as annuities.

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Annuity and taxes

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Q. Are my CSRS retirement annuities subject to Social Security and Medicare tax if I retire at age 58 with 37 years of service?

A. No. Social Security and Medicare taxes are only taken from earnings from wages or self-employment, not annuities.

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Switching from Blue Cross/Blue Shield to Medicare Part B

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Q. 1. Can someone switch from Blue Cross/Blue Shield to Medicare Part B at age 71?

2. Should it be done?

3. If yes, how can it be done, and what are the costs?

I am 71 and self-employed (since 2011), covered under my wife’s federal Blue Cross/Blue Shield plan. My wife has been retired for a few years and she also turned 71 in 2012.

My wife was just operated for a brain tumor and is being scheduled for radiation therapy and chemotherapy.

A. While your wife could disenroll from the Federal Employees Health Benefits program and both of you enroll in Medicare Part B, what she gained by no longer having to pay premiums for the former would likely be offset by the premiums you’d both have to pay for the latter. Although each of you would have to pay $99 per month in 2013, the fact that neither of you enrolled when you were first eligible would mean that those premiums would be increased by 10 percent for every year you failed to do so.

Further, the benefits you both now receive from Blue Cross/Blue Shield are substantial. While adding Part B would increase that coverage, dropping the FEHB coverage would adversely affect it. Further, if she dropped her FEHB enrollment, she would never be able to re-enroll.

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Social Security

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Q. I retired on an early-out offer on Dec. 31, 2011, with 29.5 years of service at age 52. As a self-employed individual, I am paying both the employer and employee share (slightly reduced) to Social Security. Assuming another 15 years of work, that’s a tremendous amount to be paying into a retirement system with little or no benefit. I also have quarters from pre-CSRS employment. What, if any, Social Security benefit can I receive down the road?

A. At age 62, you’ll be eligible for a Social Security benefit. Whether or not you apply for it at that time or wait until later is up to you. When you are retired and apply for that benefit, it will be based on your total years of Social Security-covered employment. However, because you are receiving an annuity from CSRS, a retirement system where you didn’t pay Social Security taxes, you’ll be affected by the windfall elimination provision. The WEP will reduce but not eliminate that Social Security benefit.

If you apply for that Social Security benefit before you retire, you’ll be subject to the Social Security earnings test. Your Social Security benefit would be reduced by $1 for every $2 you earned above the limit, which is $14,640 in 2012. In the year you reach your full Social Security retirement age, the limit changes and your benefit is reduced by $1 for every $3 over the limit ($38,880 in 2012).  There isn’t any limit after you reach your full retirement age. Note: The WEP will still apply if you have fewer than 30 years of substantial earnings under Social Security.

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TSP, Social Security and annuity

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Q. When I retire under FERS, can I get all of my Thrift Savings Plan monies, Social Security and my annuity? Can I roll over my TSP monies without paying 30 percent of the total to the Internal Revenue Service? If so, what amount of tax-deferred monies, once rolled over, can I take out monthly without a penalty or have to pay taxes?

A. Reg: Yes, you can receive an annuity and, unless you retire under the MRA+10 provision, the special retirement supplement, when you reach your minimum retirement age. Unless you exceed the Social Security earnings limit from wages or self-employment, the SRS will continue until age 62 when you will be eligible for a Social Security benefit.

Mike: Once you retire, you may withdraw your TSP money. If you retire during or after the calendar year in which you reach age 55, your TSP withdrawals will be exempt from the early withdrawal penalty. There is no withholding or tax due for TSP money rolled over to an IRA. If you are under age 59½, you will be subject to the early withdrawal penalty for withdrawals from an IRA. There are exemptions from the penalty, however, and they are spelled out in IRS Publication 590.

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Social Security earnings limit

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Q. I know that the Social Security supplement is reduced for any earnings above $14,640 (in fiscal year 2012). If I retire under FERS at my minimum retirement age but my wife keeps working at her job, will her earnings count toward that $14,640? Also, would distributions from my Thrift Savings Plan count toward it?

A. Reg: The Social Security earnings limit applies only to your own earnings from wages and self-employment, not anything else.

Mike: Your TSP distributions do not count as earned income.

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Annuity reduction with part-time work

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Q. I am now retired from federal civil service under CSRS with 33 years of service. I have contemplated working a part-time job, nonfederal employment, and maybe becoming self-employed but wondered if I will have my annuity reduced due to additional earnings. Also, is there a maximum dollar amount I am allowed to earn annually beyond what I am paid in my retirement annuity before my retirement is reduced?

A. As long as you aren’t re-employed by the federal government, you can make as much as you want without it affecting your CSRS annuity.

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Special retirement supplement

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Q. I will be retiring from the Postal Service with 31 years of FERS at the age of 56. My question is about earning limits with the special retirement supplement. If, at age 56, I withdraw all or a portion of my Thrift Savings Plan account, will this affect my SRS from the USPS?

A. No, it won’t. The Social Security earnings limit applies only to earnings from wages or self-employment.

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Medicare

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Q. I hope to retire under CSRS at age 60. Will Medicare deductions continue to be taken from my CSRS pension checks when I retire?  If so, will the deductions end when I turn 65 and am eligible to invoke Medicare coverage?

A. Deductions for Medicare are only taken from earnings from wages or self-employment, not annuities.

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FERS supplement for rehired annuitant

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Q. I will retire under FERS and will be rehired by an agency as a rehired annuitant. Will I still receive my full supplement?

A. If your earning from wages or self-employment exceed the annual Social Security earnings limit, your special retirement supplement will be reduced or eliminated. In 2012, the earnings limit is $14,640. If you exceed that limit, $1 in benefits will be deducted for every $2 in earnings.

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Earning cap: Gross or net?

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Q: Is the $14,160 earning limit on early retirement gross, or net? I am self-employed and have expenses. I do not net more than $14,000.

A: The earning limit is the gross amount of your income, not the net.

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