Question 213: My wife and I have been retired under Railroad Retirement for more than a year. We have formed an LLC (a Limited Liability Corporation) to start a new business. Neither of us plans to draw a salary; I will receive a "distribution" from the LLC.
Do I have to tell the RRB about the LLC? And will the "distribution" that I will receive have any affect on either Tier 1 or Tier 2?
Answer: The arrangement you have described might affect your Railroad Retirement benefits, depending on your ages and the purpose of your new business. Normally, earnings from "passive" investments such as stocks, bonds, bank accounts, real estate & other business investments do not count against the earnings limit. But when you are actively engaged in the day-to-day activities of a business activity, the RRB may find that this is self employment & the amount you receive from the business counts against the earnings limit.
One other note of caution. The RRB has completly freedom to determine if a work activity is "employment" or "self employment". This is true regardless of how the renumeration is reported to IRS for income tax purposes or to Social Security.
If you are already past 65, earnings restrictions for Tier 1 no longer apply to you. However, if your work activity is determined to be "restricted employment" your earnings could affect your Tier 2 regardless of your age, or even the payment of your entire annuity.
In order to protect your future benfits and those of your wife, I strongly recommend that you submit the details to the RRB; ask them to review the facts and give you a formal decision. This will prevent a large overpayment from happening.