Can You Deduct Buying Back Years of Service on Your Pension? Ask The Hammer: In this episode of Ask The Hammer, Jeffrey Levine from Buckingham dives into whether buying back years of service on a state retirement plan qualifies for a tax deduction.

While typically contributions to retirement plans are tax-deductible, buying back service likely isn’t. The money used for the buyback is likely after-tax dollars, resulting in a tax basis in your pension. This means a portion of each retirement check will be tax-free, but the total deduction won’t be as significant as a traditional contribution.

Levine emphasizes that the decision of buying back service depends on individual circumstances. Factors to consider include life expectancy, risk tolerance for investment strategies, and the guaranteed income a pension offers. Pension buybacks can be valuable for those seeking a predictable income stream and peace of mind in retirement.