Q. My mother retired from the Social Security Administration under CSRS in August 2009 and passed away in September 2012. Based on her W-2, her employee contribution amounted to $55,000. In September 2012, I submitted SF 2800 for any unused employee contribution. The final lump sum was less $800, but based on her contribution, I thought the amount was low. Under CSRS, is the employee’s contribution exhausted first?
A. No, an employee’s contributions aren’t exhausted first. That hasn’t been the case since the law changed in the mid-1980s. Since then, a retiree receives a portion of his or her contributions tax-free with the remainder of the annuity being taxable. The tax-free amount is based on actuarial tables developed by the Internal Revenue Service. To see how your mother’s tax-free portion would have been determined, go to www.irs.gov/pub/irs-pdf/p721.pdf and read Part II Rules for Retirees.
Unless there’s something out of the ordinary about your mother’s retirement, most of her contributions wouldn’t have already been returned to her through her annuity payments.
