Q. Since we pay taxes on our CSRS contributions, how do we avoid paying taxes on this money when we retire? I have about $80,000 so far.
A. You will never pay taxes on your CSRS contributions for the very reason you just stated. They were already taxed when you were working. However, these aren’t the good old days. Back then, your annuity was made up entirely of your contributions until the money ran out. Up to that point, you didn’t pay a cent in taxes. However, when you began receiving the government’s contributions, they were 100 percent taxable. Now only a portion of your annuity will be made up of your tax-free contributions. To find out what that amount will be, go to www.irs.gov/pub.irs-pdf/p721.pdf and look at Part II: Rules for Retirees.