The Army and National Guard retirement systems are arguably the best retirement deals around. Unlike most civilian retirement plans, the Army offers you a pension with benefits, that starts the day you retire, no matter how old you are. That means you could start collecting a regular retirement pension as early as 37 years old! What’s more, that pension check will grow with a cost of living adjustment each year. But, what about taxes? Here is a little FYI about taxes on military retirement…
In general, retirement pay, like all other income pay is, unfortunately, subject to income tax. DFAS will calculate exactly how much is to be withheld and that amount will be withheld each payment.
There are exceptions to the rules, though! If your retirement is for disability reasons, then all retired pay is tax-free! An IRS Form 1099-R simply will not be issued and you are not required to report this tax-free income.
Basically, determinations in each individual tax case are made by the IRS or the tax authorities of the State government jurisdiction. Answers to Federal tax questions should be obtained from the District Director of Internal Revenue Service. Answers to state tax questions may be obtained from appropriate State officials or your local unit finance department. It is highly recommended that you consult with a legal attorney, a tax consultant or the IRS.
Don’t be discouraged, though. Even in the civilian world, your retirement pay will be taxed as you withdraw from your 401k or other retirement account (provided the contributions were made tax-free during your employment). Regardless of whether your Army retirement pay is taxable or not, it is still a great benefit of serving in the Army and National Guard. Unlike the civilian world, it is a benefit you receive without having to make your own contributions and grows each year, rather than diminishes.
What are your thoughts? Do you have any questions? You can post your comments or questions below. Thank you.