Showing posts with label taxes. Show all posts
Showing posts with label taxes. Show all posts

Public Plan?

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Is MOSERS a public or private pension plan?
MOSERS is a public defined benefit (DB) pension plan so the benefit you receive through MOSERS is considered a public pension. As long as you reside in Missouri, your retirement benefits are subject to Missouri state income tax and federal tax. You may also be interested in information we have posted about the Missouri state tax Public Pension Exemption. Print Friendly and PDF

Tax Information for Retirees

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If you are receiving a retirement check from the state of Missouri are you required to claim it on your state tax income tax return as income?
Yes, you are required to claim your MOSERS benefits on your state taxes if you are a Missouri resident. (If you are not a Missouri resident, contact your state department of revenue or a qualified tax advisor for the answer to this question.) Below is some additional information that MOSERS retirees often need when filing their taxes:

1.      MOSERS is a public defined benefit (DB) pension plan and the benefit you receive through MOSERS is considered a “public pension”.

2.      MOSERS withholds state taxes only for Missouri residents.

3.      As long as you reside in Missouri, your retirement benefits are subject to Missouri state income tax and federal tax. However, you may qualify for the Public Pension Exemption on your Missouri state tax return.

4.      We have mailed 1099-R tax forms to all retirees/benefit recipients, which you can read more about in the current Fall/Winter 2018 issue of RetireeNews.

5.      See “Understanding Your 1099-R” for additional information. Print Friendly and PDF

BackDROP & State Taxes

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Does my backdrop withdrawals add to my state pension income which adds to my state taxable income that effects my state tax exemption?
Yes, the BackDROP distribution is considered taxable income for the year in which you receive the payment unless you roll it over to a traditional IRA or another eligible employer plan, such as MO Deferred Comp. A popular reason to roll the lump-sum payment into the deferred compensation plan is that it allows employees to defer taxes on the payment until those assets are distributed in retirement. There is a helpful publication on MO Deferred Comp’s website called Thinking About the BackDROP? 

Any withdrawal after retirement is taxable in the year of the withdrawal.

We suggest you speak to a tax professional or financial advisor for advice specific to your situation. For more information about state taxes, or the Public Pension Exemption, please contact the Missouri Department of Revenue or go to: www.dor.mo.gov/personal/ptc/pension.php.

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Public Pension Exemption

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Will state pension still be tax exempt for 2018 pension?
If you are referring to the Public Pension Exemption, we are unaware of any changes to it compared to the previous year. This means that you may not have to pay Missouri state taxes on some or all of your MOSERS pension. See the articles in the Fall/Winter issue of RetireeNews and PensionsPlus (for those getting ready to retire). For more information about taxes, please contact the Missouri Department of Revenue or go to: www.dor.mo.gov/personal/ptc/pension.php. Print Friendly and PDF

1099-R Tax Form

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We received two questions about 1099-Rs recently:
1. When will 2018 1099-R be on-line?
2. Why can I not receive/access my 1099R online ? It would seem to me that it would save thousands of dollars.
You can access an electronic copy of your 1099-R after we have mailed it, which will be by the end of January. Simply log in to your MOSERS Member Homepage and you will find it listed under Personal Information. Watch our website or see this article on taxes from the Fall/Winter issue of RetireeNews for more information.

We appreciate your comment indicating you would be ok getting it online only and that it would save money. We have taken that approach with our other publications and correspondence - based on individual member preference. The 1099-R is one document that we still make available to all retirees both in hard copy and online. The decision to do so is based on our experience with retiree preference and needs. However, we will certainly take your suggestion into consideration for future planning.

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Taxes on MOSERS Pension?

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Your RetireeNews, Fall Winter 2017 states if a retiree lives in Missouri, then Missouri state income tax may be due on the pension. Does this imply that if a retiree is a resident of another state (even one without a state income tax) that the Missouri pension is not taxed by the State of Missouri?
Each person’s situation may be different and we cannot advise you on your tax liability as it pertains to your MOSERS pension. We suggest you contact the Missouri Department of Revenue and/or a qualified tax advisor about your tax liability.

MOSERS withholds state taxes only for Missouri residents. If you aren’t a Missouri resident in retirement, contact the appropriate state and local tax authorities to determine the taxability of your MOSERS benefit there. We will mail 1099-R tax forms to all retirees by January 31, which you can read more about in the current Fall/Winter 2018 issue of RetireeNews.

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Public Pension?

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Is mosers a public or private pension?
MOSERS is a public defined benefit (DB) pension plan so the benefit you receive through MOSERS is considered a public pension. As long as you reside in Missouri, your retirement benefits are subject to Missouri state income tax and federal tax. You may also be interested in information we have posted about the Missouri state tax Public Pension Exemption. Print Friendly and PDF

Withdrawing Funds

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Is is possible to withdraw a portion of our annuity?
No. MOSERS is a non-contributory defined benefit (DB) plan for members hired before January 1, 2011. As such a member, your employer pays the necessary contributions to MOSERS while you are actively employed so that you may receive a future monthly retirement benefit and potential survivor benefits. Since you do not pay contributions, you are not eligible to withdraw funds from the retirement system.

Members employed in a MOSERS-covered position for the first time on or after January 1, 2011 are required to contribute 4% of their gross salary to help fund the retirement system. Those members, if they leave state employment, have the option of requesting a refund of the contributions they have made to MOSERS plus any interest on their contributions – if they do so prior to reaching normal retirement eligibility. Any member who receives a refund will forfeit service credit and the right to receive any future retirement benefits from MOSERS.

Any refund of contributions taken as cash (as opposed to rolling it over to MO Deferred Comp, a traditional IRA, or other qualified retirement plan) is considered taxable income for the year you receive it. MOSERS is required to withhold 20% for federal taxes on such a refund. If you receive a cash payment before you reach age 59½ and do not roll it over, you may have to pay an IRS a penalty equal to 10% of the taxable portion of the payment in addition to the regular income tax. See our Special Tax Notice for more information.

The IRS does not currently allow pension plans to offer lump-sum payouts to current retirees in exchange for reduced future benefit payments. MOSERS did offer a buyout program which enabled eligible members to accept a lump-sum payment in lieu of all future annuity payments. However, this program was not available to members who had already begun receiving monthly benefits.

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Rule of 80 & Age 55

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One of my coworkers informed me that state employees who are retirement eligible per the rule of 80 will be penalized if they are under the age of 55. I am not aware of any such penalty but wanted to ask. 
No. There is no penalty or reduction to your MOSERS pension benefit if you meet both the age and service requirements for normal retirement eligibility before the age of 55. To be eligible to retire under the Rule of 80 in the MSEP and MSEP 2000, you must be at least age 48 and your age and years of service must equal 80 or more.

Taxes &/or penalties related to other distributions:

•        There may be a 10% IRS tax penalty if you are younger than age 59 ½ at the time of payment, elect BackDROP*, and take a lump-sum cash payment. If you terminate employment in or after the year you reach age 55, this penalty will not apply. Additionally, MOSERS is required to withhold 20% of a BackDROP cash payment for federal taxes. More details are available in the Special Tax Notice brochure on our website. In such a situation, you can avoid the IRS tax penalty by rolling over the BackDROP payment to a qualified retirement account such as with MO Deferred Comp and not withdrawing it until you meet all IRS regulations (generally speaking, that is after you attain age 59 1/2 but there are exceptions, see page 4 of the Special Tax Notice, including one for public safety employees).
•        If you have made pre-tax contributions to the MO Deferred Comp plan (an internal revenue code section 457(b) plan), distributions from that plan following retirement or termination of service at any age are subject to ordinary income tax only.
•        Employer “match” contributions made on behalf of an employee to a 401(a) plan are subject to an additional 10% penalty if withdrawn prior to age 59 1/2.

Be sure to check with your financial institution or a tax advisor for information about your tax liability when you begin withdrawing your funds.


*BackDROP is available only to general state employees who are members of MSEP & MSEP 2000 and who work at least two years beyond normal retirement eligibility. 

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BackDROP Payment

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If you opt to have the cash pay-out of your backdrop, how long does it take after your retirement date to receive it?
Your BackDROP* payment (either cash or rollover) will be paid on the last working day of the month your retirement is effective, along with your first monthly retirement benefit payment. For example, if your retirement date is May 1, your BackDROP payments will be made on the last working day of May. This is assuming you have completed all necessary forms, including your BackDROP Distribution form, when you retire online or on paper.

Please be sure to read the Special Tax Notice brochure on our website to learn about various tax consequences if you take some or all of your BackDROP payment in cash.

*BackDROP is an option that allows eligible members to receive a lump-sum payment in addition to an ongoing monthly payment. It is available only to general state employees who are members of MSEP & MSEP 2000 and who work at least two years beyond normal retirement eligibility.   Print Friendly and PDF

Non-Missouri Retirees & Taxes

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Are Public Pension benefits taxable if the MOSER retiree now resides in a state other than Missouri? I understand Missouri does not tax MOSER pensions.
MOSERS withholds state taxes only for Missouri residents. If you aren’t a Missouri resident in retirement, contact the appropriate state and local tax authorities to determine the taxability of your MOSERS benefit.

As we reminded our retirees in the Fall/Winter issue of RetireeNews, remember that pension benefits are subject to federal taxes.

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Annual Leave and Medical Premiums

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I have heard that at the time of retirement that you can use your AL balance to pay for medical coverage for up to a year.  Is this true and if so how does it work?
Yes, this is true. Check with your HR staff and MCHCP for specific information as it relates to you, but here is some general information we received from MCHCP on the topic: Your employer’s payout for your unused annual leave/vacation can be used to pay your medical insurance premiums during the remainder of the year in which you retire. When you fill out your MCHCP Retiree Enrollment Form, you may elect to deduct your premiums using your one-time lump-sum annual leave payout as long as you did not opt out of the Cafeteria Plan’s premium only category and current premiums are deducted pre-tax. Depending on how many hours of annual leave you have, this can be a sizeable amount and can result in tax savings!

After you send the form in, MCHCP will contact your department’s payroll representative to verify your lump-sum payout amount. You may only pre-pay for the remaining premiums in the year you have retired. For example, if you retire in July, you may potentially pay for your August-December premiums with your unused annual leave payout.

For more information about your particular situation, please contact MCHCP at (800) 487-0771.

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Taxes on BackDROP

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If MOSERS benefit is a “public” pension and, therefore, is not considered a salary or wage why would I have to pay taxes on the backdrop? Isn't the backdrop considered part of an employee's pension?
You can find the answer to your question in a previous post on Rumor Central about the taxability of BackDROP. Print Friendly and PDF

BackDROP & Social Security

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In looking over my Social Security application, I see that they want to know what my earnings will be in 2018. I plan to roll over my MOSERS backdrop--will the amount of my backdrop be considered earnings by the Social Security Administration? Or do I only submit my projected salary earnings for 2018?
 Your MOSERS benefit is a public pension and, therefore, is not considered a salary or wage. It does not count towards the annual earnings limit for social security. Your BackDROP payment, however, is considered taxable income for the year in which you receive the payment unless you roll it over to a traditional IRA or another eligible employer plan, such as MO Deferred Comp. Depending upon your age, there could also be an additional 10% IRS penalty if you choose the cash payment.

When you retire with MOSERS, you will be asked if you want to elect BackDROP* (if eligible), and, if so, how you want to receive that distribution: cash option, rollover option, or combination cash and rollover option. State employees eligible to receive a lump-sum BackDROP payment get this payment in addition to a lifetime monthly benefit payment and can choose to roll the lump sum into the MO Deferred Comp Plan at retirement. This option is available to all state of Missouri employees, even if they have never participated in the deferred compensation plan. A popular reason to roll the lump-sum payment into the deferred compensation plan is that it allows employees to defer taxes on the payment until those assets are distributed in retirement. There is a helpful publication on MO Deferred Comp’s website called Thinking About the BackDROP?

We suggest you speak to a tax professional or financial advisor for advice specific to your situation and to discuss all of your options at retirement.  For more information about Social Security, the Social Security Administration website is www.ssa.gov or call them toll-free at (800) 772-1213.

*BackDROP is available only to general state employees who are members of MSEP & MSEP 2000 and who work at least two years beyond normal retirement eligibility.

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Saver's Tax Credit

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A friend under tier 2011 wants to know if their 4% contribution towards retirement is eligible for the federal saver's tax credit. Some places on the web seem to call the employee contribution a 457 (deferred comp) plan. No where else is it referred to by any plan name (IRA, 403B, 401K) that would clarify what it is. To make it more confusing, the contribution is in box 14 of their W-2 with code EE after it. If it was in box 12, code EE would mean it was a 457 plan and would be saver's credit eligible, but there is no definition of what this means in box 14. Did they make a mistake?
No, the 4% employee contributions made by members of the MSEP 2011 or the Judicial Plan 2011 to MOSERS do not qualify for the retirement Savers Credit because these contributions are mandatory contributions. The MOSERS defined benefit plan is classified as a qualified retirement plan. However, only voluntary contributions to a qualified retirement plan are eligible for the retirement savers credit. The 4% contributions are made on a pre-tax basis and used to help pay the cost of future retirement benefits. On the W-2 form, contributions to the MOSERS defined benefit plan should be listed in Box 14, but there are no standard codes to indicate the type of contribution. It is optional for the employer to report these contributions on the W-2.

The MO Deferred Comp Plan is a voluntary governmental 457(b) plan designed to help employees save additional income to supplement their defined benefit pension and social security benefits in retirement. The deferred compensation plan provides a convenient way to save extra money for retirement through payroll deduction. Voluntary contributions to MO Deferred Comp, or another governmental 457(b) plan, are eligible for the Saver’s Credit. Keep in mind, the credit is for low- to moderate-income taxpayers and calculated using their adjusted gross income (AGI) and filing status. Learn more about the Saver’s Credit on the IRS website. On the W-2 form, contributions to MO Deferred Comp, a 457(b) plan, are listed in Box 12. A code of G indicates a 457(b) plan and a code of EE indicates designated Roth contributions under a governmental section 457(b) plan.

Please see the instructions for IRS Form 8880 for more information concerning this credit.

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Taxes & Retiree Pension Benefits

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Tax reform, how does this impact a retiree benefit? Have you changed the calculators to match the appropriate tax brackets as they will be now? 
The tax reform bill that was recently passed appears to change some federal income tax brackets (the rates/percentage), including the income level ranges that fall within the brackets. Pensions continue to be considered taxable income at the federal level (unless contributions were made after-tax), so we suggest you discuss whether the federal tax changes will affect you with your tax professional.

Changes (if any) to the amount of your MOSERS benefit payment will be implemented beginning with your February payment (issued on February 28, 2018).

To the best of our knowledge, state taxation of Missouri public pensions won’t be affected by this bill. As a reminder, we included an article in our winter issue of RetireeNews about the Missouri public pension exemption.

You should have received your 1099-R tax form with information you will need to file your tax returns for 2017. If you prefer an electronic copy of your 1099-R or if you find you need a replacement copy of it, simply log in to your Member Homepage and you will find it listed under Personal Information.

Yes – we have updated the Federal Tax Calculator on our website. If you decide you want to change either your state or federal tax deductions from your monthly pension benefit, you may do so at any time. Simply submit a new Substitute W-4P form available on the Retiree Forms page of our website for you to print and mail in, or log in to your MOSERS Member Homepage and submit this form electronically.

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1099-Rs for MOSERS Retirees

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When will 1099s be distributed, or is there a way I can go online to get my last years benefit information? 
We will mail your 1099-R form by January 31. If you prefer an electronic copy of your 1099-R or if you find you need a replacement copy of it, simply log in to your Member Homepage and you will find it listed under Personal Information. Your 1099-R form will be available for you to view or print after they have been mailed.


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Missouri Public Pension Exemption

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I have heard a rumor that the exemption from state income taxes for the state pension and deferred comp is going away. Please comment.
We are not aware of any changes to the Missouri Public Pension Exemption. We included a reminder about the exemption in the Fall/Winter issue of RetireeNews that is now online and on its way to mailboxes soon. For specific questions, we would suggest you contact the Missouri Department of Revenue or your tax professional. Print Friendly and PDF

Buyout Program

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Concerned about the retirement buyout coming up. I don't understand how its figured out, will they take in consideration how many years you will be actually in retirement, help with taxes if you cash out, financial advice. Also, when can we expect more of the information to come out. Thank you!
We are currently finalizing the list of members who are eligible for the Buyout Program and verifying all their information. We cannot yet answer any questions about eligibility or individual lump-sum amounts until we have mailed your letter. We will send letters about the Buyout Program to all eligible members by the end of September. This voluntary program will be offered to eligible former state employees who are vested in a MOSERS retirement plan.

Not Eligible: You are not eligible for the buyout if you are actively employed in a MOSERS or MPERS-covered position, already retired and receiving a MOSERS benefit, have applied for early retirement or will reach normal retirement eligibility with MOSERS prior to 12/1/2017. (See our Rumor Central post “Lump-Sum Payout?” for other reasons vested former state employees may not be eligible.)

If you are eligible, we will send you a personalized letter which will contain both the estimate of your one-time lump-sum amount (if you choose to elect the buyout) and also your future estimated normal retirement annuity/monthly benefit amount. If you do not choose to participate in the Buyout Program, we will contact you prior to retirement eligibility and provide information about the retirement application process.

The amount of the lump-sum payment will be 60% of the present value of your future normal retirement annuity. In order to estimate how long a member might live in retirement, we will use unisex mortality tables. The discount rate used to calculate the present value of your future normal retirement annuity is 7.50% (this is the amount we assume we will earn each year through our investments). All lump-sum payment amounts will be calculated as of October 1, 2017.

With regard to taxes,

If eligible, you should read the Special Tax Notice and consider discussing it with a qualified tax advisor to ensure you fully understand the tax implications of electing the buyout payment.
If eligible, you may take the lump-sum buyout payment as a cash payment, as a rollover to a qualified retirement plan, or as a combination cash and rollover distribution.
Any distribution not directly rolled over to a qualified retirement plan will be reported as taxable income in the year of payment. MOSERS is required to withhold 20% of the taxable portion of a cash distribution for federal income tax. If you are younger than age 59 1/2, an additional 10% early distribution federal tax penalty may apply.

To give members a heads-up so they will be watching for their letter, we will send a newsletter (by email and to home mailing addresses that we have on file) to eligible members with more information about the Buyout Program.

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IRAs and Public Pensions

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I am currently employed by the state and have the state pension plan. Am I allowed to open an IRA?
Yes, according to IRS Publication 590-A, you can open up an IRA regardless of your status in a pension plan. Keep in mind, an IRA is simply another type of personal retirement savings account like your employer sponsored retirement savings plan, MO Deferred Comp. There are many advantages to contributing to the deferred compensation plan instead of an IRA, such as:

Penalty-free Withdrawals: 457 plans, like MO Deferred Comp, have no withdrawal penalty before age 59 ½ once you’re terminated (retired or left employment) from state service. When withdrawing from an IRA before age 59 ½, you will be subject to a 10% penalty.
Tax-free Savings: Just like an IRA, MO Deferred Comp offers a ROTH option allowing you to benefit from tax-free withdrawals.
Higher Contribution Limits: The 2017 IRS contribution limits are much higher in a 457 plan versus an IRA. In an IRA (ROTH or traditional), savers are allowed to contribute $5,500 if under age of 50 and $6,500 if over age 50. While within MO Deferred Comp, savers can contribute up to $18,000 a year if they are under the age of 50, $24,000 if over the age of 50 and $36,000 if within three years of retirement during the 2017 calendar year.

Again, you can open a traditional IRA as long as you (or, if you file a joint return, your spouse) received a taxable income during the year and you are not ag 70 ½ by the end of the year. However, you may not be able to deduct all of your contributions if you or your spouse are covered by an employer sponsored retirement plan. For 2017, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified Adjusted Gross Income (AGI) is:

More than $99,000 but less than $119,000 for a married couple filing a joint return or a qualifying widow(er),
More than $62,000 but less than $72,000 for a single individual or head of household, or
Less than $10,000 for a married individual filing a separate return.

For more information, please see Publication 590-A for other restrictions concerning traditional IRA and also Roth IRA contributions. https://www.irs.gov/pub/irs-pdf/p590a.pdf.

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