One portion of President Reagan's tax "reform" proposal would eliminate a major benefit -- the tax-free period immediately following retirement -- now enjoyed by federal and postal employes and other workers who contribute to their own retirement plans.
The little-noticed proposal would not affect the annuities of persons who are already retired or who retire this year. It would, however, affect anyone retiring in 1986 or thereafter.
Under current law, persons in the federal or private sector who contribute to their pension programs do not pay any federal income tax on their annuities until after they have retired and recovered all the money they contributed toward their retirement. The reason is that the money they contributed has already been taxed as part of the individual's gross income when he or she was working.
Most U.S. workers contribute 7 percent of their paycheck to the civil service retirement fund.
That is a big chunk of money -- especially considering that most private sector employes do not pay anything for their pension benefits.
But the feds recover as part of their pension all of the money they paid into the fund, usually within 18 to 22 months of retiring. Their annuities become taxable only after they have gotten back what they put in.
For most retirees this means a tax-free period of income lasting at least a year, and in some cases up to three years.
The tax reform plan, if it becomes law, would change that system. It would require persons retiring after 1985 to pay taxes on a portion of their annuity almost as soon as they started drawing it.
Federal and postal unions are eyeing the complex proposal because it would have a major financial impact on everybody now working for the government and all persons hired in the future.