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Should I consider becoming a ‘Rehiree’?

IRS Provides Path to Rehire & Retain Employees

The IRS has a favorable stance for employers and those who have already retired to return to work. Due to the COVID related labor shortages, employers have an option to rehire retirees and allow benefits to be paid to current employees, who have reached age 59 ½.

An unforeseen hiring need can be resolved by rehiring former employees, even when they have already started receiving pension benefit payments. If the plan allows, employees can continue to receive benefits after returning to work, plus the employer can continue paying retirement benefits to those age 59 1/2 or as defined by the qualified plans retirement age.

The first consideration of a retired employee returning to work is how it will affect their retirement status: are they officially still retired and can they still receive retirement benefits? A lot determines upon the governance of the retirement plan set up by the qualified plan sponsor (401k). If the plan does not have any stated pre-arrangements contradicting the employer’s ability to rehire due to an unanticipated labor shortage, it generally will not cause a ‘Rehiree’ to lose or forfeit their current retirement distributions.

Keep in mind that magic age of 59 ½; if an employee retired under this age, their benefit payments might be subject to a 10% tax, unless it meets an exception under Internal Revenue Code section 72t. Accordingly, if an employee separates from service when they reach 55 (or 50 for government employees) then they will not encounter the 10% additional tax when the retirement benefit comes from a qualified plan such as a 401(k); be advised that if it’s from an IRA a SEP or Simple IRA or other related plans, it this does come under the exemption, i.e. would encounter the 10% additional tax.

Also note this could affect taxable income, if the individual has taken early retirement from Social Security. In this case, talk to a tax professional for the potential tax implication, if they’re considering returning to the workforce to be part of the solution. As applies to Social Security Benefits, after reaching Full Retirement Age additional earned income doesn’t affect your benefit payments.

This is all favorable news for employers looking for a labor shortage solution and to those retirees wanting to pick up additional income and likely would need little training as the work would be familiar. If you’d like to know how these circumstances affect you as a possible ‘Rehiree’ give us a call at Suncoast Social Security Advisors at 941.248.3638 and Thanks for Listening.

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