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Tax Information

A TRSL member's retirement benefit is exempt from Louisiana state income tax. However, the benefit is subject to federal income tax and can include both a tax-free amount and a taxable amount. Member contributions made to TRSL before July 1, 1988, were taxed (unsheltered) and are not subject to tax in retirement. However, member contributions made on and after that date were not taxed (sheltered) and become taxable in retirement.

Using the simplified method to figure the amount of your benefit exempt from federal income tax
The Internal Revenue Service (IRS) developed the simplified method, using two tables, to calculate what portion of the retirement benefit is subject to federal income tax. Using the appropriate table, the basic formula for calculating the tax-free portion of the retirement benefit is the amount of unsheltered TRSL contributions divided by the number of months allowed for payout by the IRS according to the member's age. The resulting figure is the tax-free portion of the monthly benefit.
 
Table 1 applies to those who retired since November 19, 1996.* After December 31, 1997, it applies only to retirees who retired under the Maximum Option or Option 1.

Table 1 - Single Life Annuity
Age when member
begins retirement 
Number of months
for payout or recovery
Number of years
for payout or recovery
55 or under 360 30.00
55 and one day to 60 310 25.83
60 and one day to 65 260 21.67
65 and one day to 70 210 17.50
70 and one day or more 160 13.33

*For members who retired before November 19, 1996, and depending upon their retirement date, a different calculation was used to determine what portion of the retirement benefit was subject to federal income tax.

The tax-free portion of the retirement benefit using Table 1, Single Life Annuity, is calculated by taking the portion of a member's TRSL contributions on which taxes have already been paid and dividing it by the number of months allowed by the IRS according to the member's age, as shown in Table 1. The contributions divided by the required number of monthly payments equals the tax-free portion of the monthly benefit.

For example, if a retiree already paid taxes on contributions of $20,000 and was under age 55 at retirement, the tax-free portion would be computed as follows: $20,000 in contributions divided by 360 payments = $55.56 per month tax free. The retiree would pay federal income tax on all of the monthly benefit except $55.56.

Table 2 applies to anyone retiring after December 31, 1997, under Options 2, 2A, 3, 3A, 4, or 4A. These options provide benefits based on the combined ages of the retiree and the beneficiary.

Table 2 - Joint and Survivor Annuity
Combined ages of member and designated beneficiary when member begins retirement Number of months for payout or recovery   Number of years for payout or recovery
110 or under 410 34.17
110 and one day to 120 360 30.00
120 and one day to 130    310 25.83
130 and one day to 140 260 21.67
140 and one day or more 210 17.50

The tax-free portion of the retirement benefit using Table 2, Joint and Survivor Annuity, which is based on the life of more than one annuitant, is calculated by taking the portion of a member's TRSL contributions on which taxes have already been paid and dividing it by the number of months allowed by the IRS according to the combined ages of the member and the designated beneficiary, as shown in Table 2. The contributions divided by the number of monthly payments equals the tax-free portion of the monthly TRSL benefit.

For example, if a retiree paid taxes on contributions of $20,000 and was age 60 and his designated beneficiary was age 56, the tax-free portion of his benefit would be computed as follows: $20,000 in total contributions divided by 360 payments = $55.56 per month tax-free. The tax-free portion stays the same throughout the retiree's life expectancy, regardless of changes in the benefit.

If the contributions have not been fully recovered at the time the retiree dies, in the case of a joint and survivor annuity, the survivor will exclude the same monthly amount from taxable income until the amount of contributions has been recovered for tax purposes.

Tax sheltering and rolling over contributions
Effective July 1, 1988, contributions to TRSL are not included in a member's taxable income. If those TRSL contributions are withdrawn, they are subject to federal income tax and a 10% excise tax penalty upon withdrawal, with certain exceptions.

Contributions that have been tax-sheltered since July 1, 1988, qualify for rollover into an IRA or another qualified plan. If a member chooses not to have these funds rolled over directly to an IRA or other qualified plan, a mandatory 20% will be withheld for federal taxes.

If a member has not attained age 59-1/2 at the time he or she receives a distribution from TRSL, with certain exceptions, the taxable portion of the distribution not rolled over is subject to a 10% nondeductible federal tax penalty. (A member who is at least 55 and terminates employment is not subject to this penalty.)

If the total distribution includes contributions on which taxes have been paid, a member may not roll over the amount on which taxes have been paid. A member may only roll over the part of the total distribution which is includable as income on the tax return. Any portion of the total distribution that was taxable and not rolled over is taxable as ordinary income. (After January 1, 2002, the already-taxed portion will be eligible for rollover, but not subject to the mandatory 20% withholding.)

All TRSL members, except retirees who return to covered employment and pay contributions and members with 40 years service credit, will participate in the tax-sheltering of employee contributions as long as they are enrolled in TRSL.