Disability Pension

Home Fairmark Forum Retirement Savings and Benefits Disability Pension

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  • #1796
    kaneohe
    Participant

    Person was disabled before retirement age and is taking withdrawals from pension plan which contains his contributions. For disability
    withdrawals is all of pension taxable? Normally I would think of using the simplified method but is that out of the picture here because it is not normal retirement age?

    • This topic was modified 2 years, 9 months ago by kaneohe.
    #1799
    Cape retiree
    Participant

    My recollection of disability pensions where employee contributes a percent to the cost of a company disability plan was that the percentage of the cost the employee covered was not taxable. So, if $25,000 in annual payments, and employee had paid 75% of the premiums, then only $6,250 of the disability payments (the portion paid for by employer) were taxable.

    #1800
    kaneohe
    Participant

    I didn’t quite word the OP correctly. Taxpayer is still less than normal retirement age.

    Found this in Pub 575 p.5:

    “Disability Pensions
    If you retired on disability, you generally must include in income
    any disability pension you receive under a plan that
    is paid for by your employer. You must report your taxable
    disability payments as wages
    on line 7 of Form 1040 or
    Form 1040A or on line 8 of Form 1040NR until you reach
    minimum retirement age. Minimum retirement age generally
    is the age at which you can first receive a pension or
    annuity if you aren’t disabled.
    You may be entitled to a tax credit if you were permanently
    and totally disabled when you retired.
    Beginning on the day after you reach minimum retirement
    age, payments you receive are taxable as a pension

    or annuity. When you receive pension or annuity payments
    you are able to recover your cost or investment.

    Your cost is generally your net investment in the plan as of
    your annuity starting date. It doesn’t include pre-tax contributions.”
    ………………………………..

    The info above talks about treating the payments as wages when less than normal retirement age. Then it talks about treating them as pensions when you are of retirement age. Only at that point does it discuss recovering your cost. That’s why I was wondering……

    #1801
    dienerte
    Participant

    Kaneohe – Sounds like a certain “Daniels” scenario I was looking at earlier this afternoon. Is my thinking correct? Tom D.

    #1802
    kaneohe
    Participant

    You just can’t do anything in private anymore 🙂 . I decided to start on the “extras” instead of the 2 assigned for the first lesson. Last night I had a dream that the answers were in the workbook to make self-learning easier. No such luck……ain’t no answers to compare with…..seems to me that would be better for self-learners so you can check yourself right away instead of waiting in ignorance.

    btw……..thanks for putting your old signature there so I didn’t have to puzzle about the new name.

    • This reply was modified 2 years, 9 months ago by kaneohe.
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