During this time of year, you may not be thinking about taxes. Instead, if you’re like me, you’re thinking about playoff baseball, football, fall festivals, and many other wonderful things that come with the onset of autumn. However, I think it might be a good idea to give you a quick refresher on how taxes will affect your retirement planning and your LAGERS benefit.
First and foremost, don’t make the mistake that many retirees make and think that you will not need to worry about taxes because you are retired. In other words, some retirees think that since they are retired and will have less income, their tax liability will be less. For some, this may be true. However, the earlier phase in retirement, in some circles called the “go-go” phase, may require you to have more income because of your lifestyle. So, be careful to not to fall into that way of thinking.
Secondly, it is helpful to consult the services of a Certified Public Accountant (CPA) to properly plan how you will handle your taxes in retirement. A CPA is going to be able to help you plan accordingly based on your entire income picture. They will help you with your deductions, how much of your retirement account withdraws should be held back for taxes and much more. They will help keep you prepare and ensure that you will not have any surprises on April 15th.
Here are a few refreshers about taxation of your LAGERS benefit:
- Your benefit is subject to State and Federal income taxes. However, it is not subject to Social Security or Medicare withholdings. It will only be subject to regular income taxes.
- Withholding taxes from your LAGERS benefits is something that you will need to setup when you retire. But, it can be changed throughout retirement. For more information about withholding, read my previous taxes blog.
- In the State of Missouri, your public pension income may be tax exempt if you meet the eligibility requirements set by the Missouri Department of Revenue. Generally, if your income is less than a certain amount, your pension income will be tax exempt, with some limitations. For more information, read my previous blog about taxes.
- If you paid in a 4% contribution at any point in your career and still have a contribution balance with LAGERS, a portion of your monthly benefit every month will be non-taxable. Read Pam’s blog about taxes to get more information about this and other taxation topics.
Those are just a few quick topics to consider regarding only the taxation of your LAGERS benefit. In retirement, you may have other sources of income that have different rule for taxation. This is why it is best to consult a CPA and properly plan for all of your taxable income. I hope this helps give you some guidance in regards to your taxes.
*LAGERS staff cannot give you any taxation advice.
Jeff Pabst, CRC
Education & Outreach Specialist