Preparing for Taxes in Retirement

Does it feel like everyone is talking about taxes right now? From political arguments in the news about tax rates to frequent ads for tax software, not to mention tax discussions within your own home, the topic can be hard to avoid at this time of year.

Debates and rebates aside, spring is the season for the filing deadline and it often prompts basic tax questions from Active and Retired Members alike. You too may have questions about the tax implications of your SBCERA benefits and how any taxes will be handled. Though we are unable to offer advice, we can provide facts and resources to help you take charge of managing your tax situation in retirement.

Your SBCERA benefit will be considered taxable income – generally.

As most contributions are made on a pre-tax basis, SBCERA benefits are generally considered taxable income for both state income tax (if you permanently reside in a state with income tax) and federal income tax purposes.

If you have ever made after-tax contributions to SBCERA, such as paying for a service credit purchase with after-tax money, a portion of your benefit may fall under the Safe Harbor laws and would not be considered taxable income. Moreover, if you receive a Service-Connected Disability Retirement, your benefit may be wholly or partially excluded from tax.

You can elect to have taxes withheld from your SBCERA benefit.

SBCERA can withhold federal income tax and state income tax for the State of California. However, if you permanently reside in another state that has income tax, you would be responsible for reporting your income and paying those taxes on your own. You can elect, revise or cancel your tax withholding at any time.

We will send you a Tax Form 1099-R each year.

Similar to the W-2 forms you received while working, SBCERA will send you a Form 1099-R each year reporting your annual SBCERA retirement benefit. The Form 1099-R also reports the amount of federal and state taxes withheld, if any. The amount of taxable and/or non-taxable income will automatically be calculated by SBCERA and reported on the 1099-R.

We offer simple tools to make your life a little easier.

In addition to receiving a 1099-R in the mail, you can also easily view, download and print 1099-Rs online in MemberDirect (www.SBCERA.org/MD) for each benefit type you have received since 2005. We also offer a 1099-R Frequently Asked Questions publication at www.SBCERA.org/1099RFAQ that explains each box on the tax form.

Talking about taxes may not be the most entertaining part of retirement, but wisely staying on top of your tax situation can provide peace of mind and more opportunity for the things you enjoy. Happy filing!

This information is provided for informational purposes only. If you have questions regarding your tax situation, future tax obligation or wish to seek tax advice, SBCERA encourages you to contact a qualified tax advisor.