Taxes and Your Benefit Payment

Taxes don’t disappear when you retire. Having a plan for dealing with taxes during retirement can help you maintain your financial well-being.

Your Deposits Were Not Taxed …

The money you deposited into your TCDRS account while you were working came out of your paycheck before taxes. In other words, that money was tax-deferred. You did not have to pay federal income taxes on it as long as it stayed in your TCDRS account.


… But Your Payments Are

Now that you’re retired and have started receiving a monthly benefit payment from TCDRS, you will owe taxes on the money you receive. How much you owe depends on your total income, not just how much you get from TCDRS.

You don’t have to have money withheld from your benefit payments to pay taxes. However, if you choose not to withhold, or if you don’t withhold enough, you may have to make tax payments. You might also have to pay a penalty if your withholding and payments are not sufficient for the tax year.

You can change your withholding anytime by signing in to your TCDRS account at or by by contacting TCDRS Member Services at 800-823-7782.


Partial Lump-Sum Payments at Retirement Are Taxed, Too

Some TCDRS employers allow retirees to take a portion of their deposits and interest out of their account as a lump-sum at retirement. If you chose to take some of your retirement money out of your TCDRS account as a lump sum, please be aware that the IRS considers that payment taxable income.

TCDRS is required by the IRS to automatically withhold 20% of any lump-sum payment you received for taxes. You may also be subject to additional tax penalties.


What’s the Right Amount to Withhold?

To determine the right amount to withhold, it’s a good idea to talk to a financial professional about your personal tax situation.

To get an idea of how different withholding options can affect your benefit payment, sign in to your TCDRS account and check out our withholding calculator.

Personal Finance Retirement Prep

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