Do You Get Taxed on Your Calpers Retirement

When you retire from CalPERS, your pension payments are generally taxable as ordinary income. This means you’ll need to pay taxes on the amount of your pension that exceeds the tax-free portion, which is based on your years of service and your age at retirement. If you receive a lump sum payment from CalPERS, it will also be taxed as ordinary income. However, you may be able to defer taxes on part of your lump sum payment by rolling it over into a traditional IRA or other qualified retirement plan. If you do roll over a portion of your lump sum, you’ll have to pay taxes on the amount you withdraw from the IRA or other plan in the future.

State and Federal Tax Considerations

When it comes to taxes on CalPERS retirement income, both state and federal tax laws come into play.

State Tax Considerations

• California: CalPERS retirement income is generally exempt from California state income tax.
• Other States: If you move to another state, check the local tax laws for any potential income tax liability on your CalPERS retirement income.

Federal Tax Considerations

At the federal level, CalPERS retirement income is generally taxed as ordinary income.

However, there are some exceptions and deductions that may reduce your tax liability:

• Standard Deduction: You can claim the standard deduction when filing your federal income tax return, which reduces your taxable income.
• Itemized Deductions: If your itemized deductions exceed the standard deduction, you can claim them to further reduce your taxable income.
• IRA Deductions: If you contributed to a traditional IRA while working, you may be able to deduct those contributions from your taxable income.

It’s important to note that the tax laws are complex and subject to change, so it’s always advisable to consult with a tax professional for personalized advice on your specific situation.

Table of Potential Tax Implications

Mandatory Withholdings

When you retire from CalPERS and begin receiving benefits, you may be subject to mandatory state and federal income taxes. The amount of tax you owe will depend on the following factors:

• The amount of your CalPERS benefit
• Your other income
• Your filing status
• The amount of withholding you claimed on your tax return

You can choose to have state and federal income taxes withheld from your CalPERS benefit by completing the appropriate forms (CA-5 and W-4P). If you do not choose to have taxes withheld, you will be responsible for paying the taxes yourself by filing a tax return.

In addition to state and federal income taxes, you may also be subject to Medicare taxes and local income taxes.

Required Minimum Distributions

Once you reach age 72, you must start taking required minimum distributions (RMDs) from your CalPERS retirement account. RMDs are the minimum amount you must withdraw each year to avoid penalties. The amount of your RMD is based on your account balance and your age.

• The formula to calculate required minimum distribution (RMD) is: RMD =
  Account balance divided by the appropriate life expectancy factor.
• The life expectancy factor is determined by the IRS and is based on your age and the age of your spouse, if you are married and your spouse is more than 10 years younger than you.
• The life expectancy factors are updated each year and are available on the IRS website.

RMDs are taxed as ordinary income. You can choose to take your RMDs as a lump sum or in monthly installments. If you fail to take your RMDs, you will be subject to a 50% penalty on the amount you should have withdrawn.

Thanks for sticking with me to the end of this article. I hope I’ve helped you better understand the ins and outs of taxes on CalPERS retirement income. If you have any more questions, feel free to reach out. And be sure to check back for more helpful articles and updates on all things retirement. Take care!