LAGERS sends retirees tax documents each year that help ensure their retirement income is reported accurately and that they understand the taxability of their LAGERS benefit. Called a 1099-R, this document shows a retiree’s 1099-R information about the LAGERS benefits paid during the previous calendar year.
This year, LAGERS made a change to how the information in Box 5 on a 1099-R is presented on the 1099-R issued for monthly benefit payments. Box 5 is an informational box and does not affect a retiree’s taxable income. Although this change will have no impact on how taxes are calculated, it is designed to help retirees better understand any non-taxable portion of their benefit.
To have a non-taxable portion of their benefit, retirees must have contributed employee contributions to LAGERS. If they worked at a non-contributory employer (meaning the employer paid the entire contribution to fund the benefit) the entire benefit will be subject to applicable state and federal tax, and Box 5 will read “0.”
For retirees who made employee contributions, a portion of their monthly benefit is non-taxable. This is because employee contributions are made to LAGERS on an after-tax basis, meaning taxes were paid on those contributions while the member was working.
Previously, Box 5 reported the same amount every year: the total lifetime member contributions and any service purchases or reinstatements. This amount did not represent the non-taxable portion of a retiree’s monthly benefit. While total contribution amounts can still be viewed any time on a myLAGERS account, Box 5 will now show retirees the non-taxable portion of their annual benefit that was funded through their after-tax employee contributions.
This change was not made on the 1099-R issued for PLUS payments. Box 5 will continue to represent the total amount of employee post-tax contributions including service purchases or reinstatements.
Updates to Box 5 on 1099-R’s issued for monthly benefit payments are designed to help retirees better understand the taxability of their LAGERS benefit, making it clearer, more transparent, and easier to understand.
If a retired member has questions about their specific tax situation, they should contact a qualified tax professional.
For more information about taxes and LAGERS retirement benefits, please visit molagers.org.
