Can I Deduct My Pension?
While retirement benefits such as pensions may seem abstract when you begin your career, they become an increasing concern for many workers the closer they are to retirement age. One issue workers of all ages understand is taxes, however, and many workers and retirees wisely attempt to maximize the tax benefits of a pension by claiming deductions. Although pensions contributions may be deductible in the year you make them, you may also be able to deduct your pension when computing your adjusted gross income in certain situations.
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Deducting Pension Contributions
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In some cases, your contributions to a pension plan may be claimed as a tax deduction. Contributions to a Simple Employee Pension IRA, usually known as an SEP IRA, are tax deductible, up to 15 percent of your annual earnings or $24,000, whichever is smaller. Contributions to other qualified plans, such as traditional IRAs and 401(k) plans, while not technically pensions, are also deductible in the year in which you make them. Remember that you don’t escape taxation forever, and any contributions made to a qualifying plan are taxed when you receive them.
Receiving Pensions
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Once you begin receiving pension payments, the amount you receive isn’t tax deductible, though it may be tax free. If you made contributions to your pension fund while you were working – as opposed to your employer's funding the entire pension – the self-funded portion of your pension isn’t taxable, and you can deduct a proportionate amount from your tax base when you calculate your adjusted gross income. Pension payments funded entirely by an employer, or payments from pensions that you received your entire contribution in prior years, are fully taxable and not deductible when you calculate your adjusted gross income.
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Claiming Social Security Pensions on Taxes
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If you receive a retirement benefit from the Social Security Administration, a portion of that pension may be taxable if you earn other income. If half of your Social Security pension plus all other sources of income exceed $25,000 and you’re unmarried, $32,000 if you’re married and filing jointly, a portion of that pension is taxable. If you’re married and filing separately and report any income, including 50 percent of your pension, the pension is claimed as taxable income.
Claiming Forgotten Pensions
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In many cases, you’re still entitled to your pension even if the company you work for has gone out of business or merged with another corporation, or if the pension plan no longer exists. If the plan no longer exists, the Pension Benefit Guaranty Corporation provides pensions to beneficiaries of defunct accounts, and instructions to claim the pension may be found from the corporation’s search engine. If the pension still exists, you should send a certified letter to the plan administrator or insurance company that administers the pension, requesting information about making claims as well as the dates you worked in a pension-qualifying position and your eligibility for a pension.
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