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Pension Income before 55
Old 04-16-2014, 06:51 PM   #1
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Pension Income before 55

Hello,

I.T. Job was outsourced 1/2013. Worked for the company for 23 years.
I interviewed with the outsourcer and landed the same job supporting the company I retired from. I was offered an early retirement package that included a monthly pension check $2,000 per month with 100% survivor benefit no COLA.
How convenient, 2 years from 80 points and retiree health care.

I went from receiving a nice tax return (couple thousand dollars) to paying about $5000 to federal and state income tax since retiring 2 years ago.

The accountant that prepares our taxes said when I turn 55 the pension income will be calculated differently for tax purposes.

Has anyone experienced anything similar
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Old 04-16-2014, 07:10 PM   #2
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Some states have tax exemptions starting at 55.
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Old 04-16-2014, 07:32 PM   #3
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Tinder,

Sounds like you have a withholding issue. No matter what the state does, you are still gonna pay federal taxes on your pension regardless of age. I'd check your with holdings and increase them to reduce the amount that you pay at year end. It is possible that your old job is not withholding at all on your pension.
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Old 04-16-2014, 08:04 PM   #4
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Tinder,

Sounds like you have a withholding issue. No matter what the state does, you are still gonna pay federal taxes on your pension regardless of age. I'd check your with holdings and increase them to reduce the amount that you pay at year end. It is possible that your old job is not withholding at all on your pension.
+1. Refunds are just money that you loaned to the government for free. Paying $5k is better. Look at your tax calculation, not the refund amount.
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Old 04-16-2014, 08:28 PM   #5
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+1. Refunds are just money that you loaned to the government for free. Paying $5k is better. Look at your tax calculation, not the refund amount.
+2 You are focusing on whether you receive a refund and have to pay rather than what your taxes are.

You would be well served to spend an hour reading through your last to years of returns or ask your accountant to explain them to you.

There isn't anything special that happens when you turn 55 that I can think of in terms of federal taxes.
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Old 04-17-2014, 09:31 AM   #6
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That's correct. I'm 58. I've been getting a pension from an early buyout for over 10 years. The federal gov treats it as regular income.

Some states treat it differently, but not the feds and not anything different after you turn 55.

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Old 04-17-2014, 10:29 AM   #7
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Neither of my pensions will be taxed by my state, but our portfolio withdrawals (TSP, 401k, IRA) withdrawals will. Of course, everything will be taxed by the feds. I agree with those who are saying that you need to be focusing on your overall tax picture, rather than whether you get a refund or pay. Best case scenario is that you zero out for the year, rather than let the government borrow your money interest-free. That's what you're doing when you get a "refund". You aren't accomplishing anything, really, and you've deprive yourself the use of that money while Uncle Sam is holding it.
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