Understanding pre- and post-tax contributions in the Arizona State Retirement System (ASRS) is important for workers' financial planning. For the fiscal year 2024-25, employees contribute 12.12% of their pay, primarily towards the "Pension and Health Insurance Benefit," which is taken out before taxes. This means it helps build their retirement fund without being taxed initially, and you can see this deduction listed as "ASRSRET" on your paystub.
The "Long Term Disability Income Plan" is a smaller, post-tax contribution compared to the main pre-tax contributions. While pre-tax contributions lower your taxable income now, making your paycheck look better, retirees might feel confused when they start receiving their pension. They may think they’re being taxed twice because Uncle Sam takes his share at that point. However, as the ASRS blog explains, this isn't actually double taxation.
For employees wanting to learn more, the ASRS website offers a contribution rates portal that explains how rates are determined and can change. This resource can help answer any lingering questions you might have, providing clear facts and figures from ASRS.
Let’s take a moment to acknowledge new retirees who are surprised by taxes on their pension benefits. As the ASRS article explains, "Functionally, it’s similar to how most all pre-tax retirement savings plans function, such as a 401(k), in which taxes are paid when you eventually begin to withdraw funds in retirement." This is a reality that all workers should prepare for to avoid being caught off guard later on.
