How Much Of A Tax Break Will I Get On My Retirement Annuity When I Retire?

By on March 3, 2010 in Current Events, Retirement with 0 Comments

The money paid into the retirement fund by a federal employee is fully taxed when earned. To avoid having this money taxed again, during retirement, the tax law provides a simple formula.

The formula takes just three factors into consideration: 

  1. Amount of employee’s contributions to the retirement fund
  2. Employee’s age at retirement
  3. Survivor’s age, if employee opts for survivor benefit.

Using the above factors, the formula then calculates the part of the employee’s annuity that will be tax exempt, and how long the exemption will last.

It does this by dividing the contributions by an actuarial figure which is in proportion to the employee’s age (and survivor’s age, if applicable). The output is expressed in terms of how much will be exempt each month, and how many months the exemption will last.

Here is one example.

Frank Ramsey is 60, has not opted for the survivor option, and contributed $54,636 to the retirement fund. Frank would be entitled to exempt $176.25 from his taxable income for 310 months. 

If Frank decided to provide a survivor option for his age-60 wife, then his exemption would be smaller—$151.77—but it would last for a longer time – 360 months. Generally, people who are older receive larger exemptions, due to a shorter "repayment" time, while employees with the survivor option receive less, due to two lifetimes instead of one.

The actuarial figures, and complete instructions, are in publication 721, which can be downloaded from Or you can go to , click no. 2 on the menu, and get accurate results, quickly and easily.




© 2016 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.

About the Author

Robert Benson served 35 years in various Federal agencies, as both a management analyst and IT specialist. He is a graduate of Northwestern University.