Payback of State Reirement Money

[ruthc]

Have a client that is getting ready to retire as a teacher in Mass. She left a teacher's job several years ago and took the money from her state retirement that she had paid in prior to leaving. She went back to teaching and is still a teacher until she retires. A couple years ago she started to pay back that money that she withdrew so when she retires her teacher's pension will be at the max amount. She is questioning me on a deduction or credit she is allowed on her federal and state return for the payback amount that she is paying the state. Is she correct? If so, can you lead me in the right direction on how to do this credit or deduction? Thanks a lot.

[Roland Slugg]

There is no current deduction or credit for the amount she is now paying into the system. Instead, the amount she repays gets added to her cost/investment in the contract. When she retires again, that cost will be recoverable tax-free using the normal annuity rules.

[ruthc]

Thank you!

I have tried to do a lot of research on this, but haven't found any deductions/credits for this. Your response makes a lot of sense after the readings that I found on it. Thanks so much!