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Does military retirement pay count as a qualified plan?

Does it count as pension or a military retirement plan?
1 Best answer

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HelenC12
Employee Tax Expert

Does military retirement pay count as a qualified plan?

The military (active duty) retirement system, is unlike most retirement plans.  The military offers a pension (technically a "reduced compensation for reduced services.") with benefits, that start the day you retire, no matter how old you are. Source: Military Retired Pay Overview 

 

Qualified money is "before tax" money.  Non-qualified money is "after tax" money.

 

Qualified plans are designed to offer individuals added tax benefits on top of their regular retirement plans, such as IRA401(k) plans403(b) plansSARSEP plansSEP-IRA plans, and SIMPLE IRA plans 

 

Non-qualified plans are those that are not eligible for tax-deferral benefits:

  • Deducted contributions for non-qualified plans are taxed when income is recognized.
  • This generally refers to when employees must pay income taxes on benefits associated with their employment.
  • When you invest outside of a “Qualified” plan, you do not get to write off this investment on your taxes.
  • Put simply, money invested into Non Qualified plans will not get an upfront tax break.
  • Additionally, the investment earnings could be taxable each year. It all depends on the type of investment you use.

 

Related information:

IRS Guide to Common Qualified Plan Requirements

IRS Nonqualified Deferred Compensation Audit Techniques Guide

 

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1 Reply
HelenC12
Employee Tax Expert

Does military retirement pay count as a qualified plan?

The military (active duty) retirement system, is unlike most retirement plans.  The military offers a pension (technically a "reduced compensation for reduced services.") with benefits, that start the day you retire, no matter how old you are. Source: Military Retired Pay Overview 

 

Qualified money is "before tax" money.  Non-qualified money is "after tax" money.

 

Qualified plans are designed to offer individuals added tax benefits on top of their regular retirement plans, such as IRA401(k) plans403(b) plansSARSEP plansSEP-IRA plans, and SIMPLE IRA plans 

 

Non-qualified plans are those that are not eligible for tax-deferral benefits:

  • Deducted contributions for non-qualified plans are taxed when income is recognized.
  • This generally refers to when employees must pay income taxes on benefits associated with their employment.
  • When you invest outside of a “Qualified” plan, you do not get to write off this investment on your taxes.
  • Put simply, money invested into Non Qualified plans will not get an upfront tax break.
  • Additionally, the investment earnings could be taxable each year. It all depends on the type of investment you use.

 

Related information:

IRS Guide to Common Qualified Plan Requirements

IRS Nonqualified Deferred Compensation Audit Techniques Guide

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

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