May 9, 2009

Did You Contribute to TRS Between 1987 and 1990?

One of my clients who also happens to be a retired educator brought something to my attention that I had never heard of regarding TRS. First, a little background though...

If you look at your paycheck, your contributions to TRS are obviously automatically withheld, but they are also "pre-tax" which means that you do not pay federal or state taxes on these contributions. When you start receiving your pension though, you start paying up... trust me.

Here's where it is a bit weird... Between July 1, 1987 and January 1, 1990, any contributions to TRS were "pre-tax" for federal, but you did pay state income tax on those contributions. In 1990 and after, contributions for federal and state are pre-tax.

In your TRS retirement packet, there could be a page telling you to read the important information that discusses this issue. The following is from my client's letter that was in the retirement packet:

"As of January 1, 1990, your contributions to TRS became sheltered from Georgia income tax. However, your contributions from July 1, 1987 to January 1, 1990 were sheltered from federal taxes but were subject to state income tax. Therefore, in order to establish the same basis for state and federal income tax purposes, Georgia revenue law allows your contributions of $X,XXX.XX for this period to be used as a recovery adjustment when filing your next year's Georgia income tax return."

While my client had hoped that the amount meant a refund of this entire amount, it unfortunately does not. When your taxes are completed, the "state distribution" should be reduced for ONE YEAR by this amount. Thus if your letter said you contributed $5,000, you could possibly save about $300 on your Georgia state income taxes. Remember, this is a ONE time recovery adjustment after you have retired and only in the amount the letter specifies. The variable here is the senior tax exemption in Georgia. If you are not paying taxes because of this exemption, you may not really receive much benefit, if any.

As with anything tax related, it is important to discuss this with your accountant or tax preparer. If you have already retired and did not take the adjustment, try to find your paperwork or contact TRS for a replacement. It may or may not benefit you, but if it does, even a couple of hundred is better than nothing.

This will not be a huge amount of money no matter what, but in the end, every little bit helps.


Anonymous said...

Is this only for new retirees, or does the one time adjustment for 2009 apply to someone who retired, say, 10 years ago.

Robert (Robby) E. Schultz III, CFP®, ChFC®, CPWA® said...

It is my understanding that this is not only for new retirees. You would need to get the paperwork from TRS though that stated your contributions that were taxed.

If you have already taken the reduction though, you cannot use it again. This is not an annual exemption - one time only.

Thanks for your question!