Are CalSTRS Contributions Tax Deductible?

Are CalSTRS Contributions Tax Deductible?
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CalSTRS is an organization that provides a retirement plan for California educators. It stands for California State Teachers’ Retirement System. Its benefits include disability, retirement and survivor benefits. One thing that you might want to know is whether your STRS Red deduction on your pay stub can be taken as a tax deduction.

What Is STRS Red?

If you are an educator in California from pre-kindergarten through community college, a portion of your paycheck will be taken out pre-tax as a contribution toward your retirement benefits. The STRS Red deduction is a defined benefit program where you must contribute ​50 percent​ of the cost of benefits. Your employer and the state split the remaining costs.

What percent does CalSTRS take out of my paycheck? CalSTRS has two different contribution amounts.

If you are a CalSTRS ​2 percent​ at ​60​ members, which means that you joined the program on or before December 31, 2012, your contribution rate is ​10.25 percent​. If you joined the program on or after January 1, 2013, your rate will be adjusted up or down depending on changes to the cost of benefits. This amount is based on an actuarial evaluation that is similar to insurance rates.

Are Contributions Tax-Deductible?

You will find the amount taken out for each pay period for CalSTRS on your paycheck under pre-tax deductions. It will be listed as the STRS Red deduction. You are not taxed on the money placed into CalSTRS, and you cannot deduct it from your taxes as an expense. You will not pay taxes on your contributions until you begin withdrawing your fund when you retire.

Many are confused about whether their STRS Red deduction can be taken as a tax deduction because the employer can take it as a tax deduction. For employers, it counts as a business expense, but the same does not hold true for contributors.

Is TRS pension taxable? CalSTRS is the retirement system in California, but other states also have a Teachers Retirement System (TRS). As far as taxes are concerned, many of them have the same rules as California where the money is taken out pre-tax, and you will pay tax on it after you retire. States differ on the amounts, contributions and rules as to when you can retire, but all of them work the same way when it comes to taxes.

STRS Red Deduction Withholding

When you sign up for CalSTRS, you have the option of creating an online account where you can complete your withholding elections. You can also fill out a certificate and mail it in. If you do not choose tax withholding preferences, federal and state taxes will be withheld at the standard rate for married with three allowances for non-rollover distributions.

You can elect to have an additional amount withheld. With rollover distributions, you have a little more flexibility. You can elect to have no state taxes withheld or a flat tax amount withheld, but you cannot waive federal withholding. If your circumstances change at any time, or you want to adjust the amount of withholding, you can do it through the website or by mailing in the appropriate form.

Understanding your tax obligations regarding CalSTRS will help you get the most from your retirement benefits. You also want to make sure that you avoid federal tax penalties that could reduce them. If you have any questions, you should talk to your human resources department for clarification.