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Unique Post-Retirement Work Restrictions for Workers and Spouses
(Posted August 14, 2002)
Question 187: I have worked for a railroad for over 40 years. For many years I have also been self-employed but my business is organized as an "S" corporation. As I understand the regulations, I am considered to be an "employee" of my "S" corporation. If I continue my self employment after retirement, my Railroad Retirement will be reduced. Am I correct? Can you explain the purpose of these unique restrictions that only apply to rail workers? Are they outdated in the 21st century?
Answer: You have read the regulations correctly. They cover two unique post-retirement work restrictions that apply to Railroad Retirement: (1)You can't receive a benefit any month you are employed by any railroad; and (2) Your Tier 2 benefit and your Supplemental Annuity are reduced by one dollar for each two dollars you earn from your last nonrailroad employer before you retired. The reduction cannot exceed 50 percent of your Tier 2 benefit or supplemental annuity. The reduction begins with the first two dollars you earn (there is no exempt amount) and contiues after age 65.
These restrictions are in addition to the regular SSA earnings restrictions for Tier 1 benefits, which apply to retirees under 65.
Normally self-employment is exempt from these restrictions. But when a business is incorporated, you are technically an employee of the corporation even if you own all the stock.
These special restrictions have been part of the Railroad Retirment program since its inception in the 1930's. The restriction for last nonrailroad employment was modified in the late 1980's to permit a partial monthly payment. At the time Railroad Retirement began, there were thousands of workers over 65 still employed, and thousands of younger workers laid off. The framers of the program wanted to encourgage older workers to retire, thereby opening up jobs for those unemployed. If you had to give up your current job to draw benefits, you would be replaced by a younger worker and you probably couldn't find another one.
In order to avoid the restrictions, you might want to consider reorganizing your business as a "sole proprietorship" and unincorporate. This action may have other negative impacts on you, such as increased taxes and more personal liability. You should seek advise from a professional financial advisor or an attorney who specializes in business law.
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