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April 11, 2023
Question

I made a payment directly to my pension to buy additional years of credit. can i deduct this amount because I will have to pay tax when I receive pension payments?

  • April 11, 2023
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April 11, 2023

If you use after-tax dollars to pay for purchased or reinstated service credits for your pension, it cannot be deducted on your tax return.  Although you don't get a tax deduction, you will not have to pay tax twice on that amount. When you make an payment with after tax funds, it is treated as “previously taxed.”  Once you start receiving pension benefit payments, a portion of each payment will not be subject to federal income tax. The IRS considers that portion of a pension payment as a return of your after-tax (“previously taxed”) contributions.  That after tax portion portion will be reported as such on your Form 1099-R.  For more information see IRS Publication 575, “Pension and Annuity Income.”

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