Is my FERS federal retirement pension considered taxable income?

Much of a federal government worker’s CSRS or FERS pension benefit will be taxable on a federal income tax return. State income tax laws with respect to pension income vary. You will receive your already-taxed contributions back without having to pay any more tax on them. However, you will receive this money back gradually over your life expectancy. The bulk of the pension you will receive consists of contributions made by your employer (i.e., a federal government agency) and earnings …

How do I pay taxes on my required minimum distribution (RMD) so I don’t get in trouble with the IRS?

It depends. Tax law requires the payment of income taxes throughout the year as you earn income. This obligation can be met through quarterly estimated tax payments, tax withholding, or both. It is a good idea to set aside a portion of the money withdrawn from a tax-deferred retirement plan for the required minimum distribution (RMD) and make quarterly estimated tax payments to the IRS unless your plan custodian provides income tax withholding services. The IRS provides payment vouchers to …

Do I have to pay capital gain taxes on my required minimum distribution (RMD)?

To calculate your RMD, divide the amount of money held in your tax-deferred account(s) at year end by the number of years left in the account owner’s life expectancy and take out at least that amount. The amount of your RMD withdrawal is then added to your other taxable income for the year and taxed according to your marginal tax rate. Thus, the whole amount of a distribution or withdrawal from an IRA, 401(k), 403(b), or other tax-deferred retirement savings …

When considering the required minimum distribution (RMD) for married couples filing jointly, can their distributions be combined for a combined RMD?

Each spouse is responsible for making a required minimum distribution (RMD) withdrawal based on his or her own individual tax-deferred retirement savings account (e.g., IRA and 401(k) plan) balances. Just as these accounts have been funded separately over a couple’s working years, the individual balances of a husband and wife must be handled separately for the purposes of an RMD withdrawal calculation.

For more information about RMD withdrawals, see this eXtension article: How to Make Required Minimum Withdrawals from Retirement

Why do employers prefer defined contribution retirement plans?

Since the mid-1980s, there has been a trend away from defined benefit pensions toward less costly defined contribution plans, especially 401(k)s. A major reason is that defined contribution plans are not linked to a specific benefit formula based on age and years of service. Workers simply receive the amount that they have been able to save with employer matching (if any), plus or minus investment earnings. Thus, the risk of workers’ longevity is not something that employers offering a defined …

Due to circumstances beyond my control, my Required Minimum Distribution (RMD) was not withdrawn until early January. What is the procedure I need to follow in such a case?

The deadline date for Required Minimum Distributions (RMD) is December 31 of each year except for your first RMD. You generally have until April 1 of the year following the calendar year that you turn 70½ to take your first RMD. You can withdraw your RMD in one lump sum or make periodic withdrawals throughout the year. Failure to make RMD withdrawals triggers an excess accumulation tax. The tax is 50 percent of the required distribution that you didn’t take.…

What were Traditional IRA and Roth IRA Contribution Limits in the Past?

IRAs were established by legislation passed in 1974. Traditional individual retirement accounts (IRAs) first became available in 1975. Anyone with earned income can make the maximum traditional IRA contribution as long as they had at least that much income in a given year. A non-working spouse can establish his/her own traditional IRA if the earned income of the working spouse equals or exceeds the total contributions to both partners’ IRAs.

IRA maximum contribution limits have increased over the years. They

How do you determine your required minimum distribution (RMD) from retirement savings plans?

Follow these five steps to calculate your RMD:

1. Determine the distribution year. The account balance used to compute the RMD is based on the balance in a person’s retirement account on December 31 of the previous tax year.

2. Calculate the account balance. Gather statements with information about the balances in retirement accounts. An exception is Roth IRAs, where withdrawals are tax free if an account has been open for at least five years. IRA accounts can be combined …

How does the “still working exception” for RMDs (required minimum distributions) apply to 403(b) plans for retired teachers who work occasionally as substitute teachers?

“Still working” means you have not retired from the position in which you were covered by the 403(b) plan. If you retire from a teaching position and continue to work for the school as an occasional substitute teacher, you are no longer contributing to the 403(b) plan, and thus you are considered retired.

Check with your retirement plan administrator to be sure but, if you have signed official retirement papers and are collecting a retirement pension, you are probably considered …

Who is exempt from paying the FICA tax in the United States?

FICA stands for Federal Insurance Contributions Act. FICA consists of two separate payroll taxes: Social Security (6.2% of pay) and Medicare (1.45% of pay), for a total of 7.65%. This is paid equally by workers and their employers, for a total of 15.3% of pay (7.65% x 2).

In the case of self-employed workers and independent contractors, they pay the full 15.3% tax as self-employment taxes on Schedule SE that is filed with their tax return. Almost all employed and …