Nystate tax exemption
I am beneficiary of New York City teacher retiree with funds in TDA inside a 403 b plan. My wife when receiving RMDS was exempt from paying New York City and New York State income tax on distributions. If I transfer funds to an IRA of my own at brokerage org. and they start to distribute RMDS to me will I be exempt from NY City and NYState income taxes. Also, If I leave funds at Teachers Retirement System and they send me RMDS Will I be exempt from NY City and State income tax.
Permalink Submitted by Alan - IRA critic on Wed, 2021-04-28 18:41
Yes, the following is copied from the NYS Dept of Taxation and Finance site:
“Q: Does a distribution from a NYS and local or federal government pension qualify for a full pension exclusion once it has been rolled over? A: Yes. However, only the rollover amount is excludable. Any interest or gains on the initial rollover may be eligible for the $20,000 pension and annuity income exclusion. The recipient must keep track of the yearly distributions from the original rollover amount versus distributions attributable to any gain or interest on the rollover amount, and be prepared to provide supporting documentation if requested.” In this situation, most of the distribution would be exempt, but you would have to pro rate the amount of the rollover as part of the total IRA balance, which would increase due to earnings after the rollover. Those earnings would be subject to their own 20,000 exclusion. Eventually, the 20,000 may not be sufficient to cover all tax liability. NYS tax filing would also be more complex.
If you leave the funds at TRS, distributions including RMDs will be fully tax exempt with respect to NYS, NYC, and Yonkers income tax. However, your federal tax would be higher due to higher RMDs using the single life table.