Retirement & Financial Planning Report

How you figure the tax-free recovery of the cost of your CSRS or FERS annuity depends on your annuity starting date. Image: Mark Van Scyoc/Shutterstock.com

The statement you received from the Office of Personnel Management when your CSRS or FERS annuity was approved shows your total contributions to the retirement plan (your cost), the commencing date (the annuity starting date), and the gross monthly rate of your annuity benefit.

Your cost is the amount on which you have previously paid income tax. This amount represents part of your contributions to the retirement plan. Even though you did not receive the money that was contributed to the plan, it was included in your gross income for federal income tax purposes in the years it was taken out of your pay. (Note: If you elected the alternative annuity option, it includes any deemed deposits and any deemed redeposits. You will use the information from your annuity statement to figure the tax-free recovery of your cost.)

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If you repaid to the retirement plan contributions that you had withdrawn earlier, or if you paid into the plan to receive full credit for service not subject to retirement deductions, the entire repayment, including any interest, is a part of your cost. You cannot claim an interest deduction for any interest payments. You cannot treat these payments as voluntary contributions; they are considered regular employee contributions.

How you figure the tax-free recovery of the cost of your CSRS or FERS annuity depends on your annuity starting date. That is the commencing date on your annuity statement from OPM. If something delays payment of your annuity, such as a late application for retirement, it does not affect the date your annuity begins to accrue or your annuity starting date.

The gross monthly rate is the amount you were to get after your annuity was adjusted for electing the survivor’s annuity and for electing the lump-sum payment under the alternative annuity option (if either applied) but before income tax withholding, insurance premiums, etc., were deducted.

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