Q.: How does a TRS-TDA participant report a TDA withdrawal on his or her New York State personal income tax return? M.P.
A.: If the participant is younger than age 59.5, the withdrawal is fully taxable.
That being said, a pension-and-annuity-income exclusion applies when the participant is older than age 59.5. This rule says the first $20,000 of the withdrawal is tax-free, with the portion of the withdrawal in excess of $20,000 taxable. Examples: Paul, age 53, withdraws $30,000 from his TDA account. Paul pays tax on $30,000. Mary, age 62, withdraws $30,000 from her TDA account. Mary pays tax on $10,000 ($30,000 - $20,000). See: Department of Taxation and Finance publication 36 at page 13.
Section 13-561 of the New York City Administrative Code states: "The right of a person to a pension, a pension-providing-for-increased-take-home-pay, an annuity, or a retirement allowance, to the return of contributions, the pension, pension-providing-for-increased-take-home-pay, annuity, or retirement allowance itself, any optional benefit, any other right accrued or accruing to any person under the provisions of this chapter, and the moneys in the various funds provided for by this chapter, are hereby exempt from any state or municipal tax..."
Comment: Simply put, section 13-561 states that all amounts received from the TRS Qualified Pension Plan are exempt from the personal income tax.
Section 13-582 i 3 of the New York City Administrative Code states: "The exemption from state and municipal tax provided in section 13-561 for return of contributions shall not apply to withdrawal of tax-deferred annuity net contributions."
Comment: Notwithstanding the fact that the tax exemption applicable to amounts received from the TRS Qualified Pension Plan under section 13-561 does not apply to withdrawals from the TRS-TDA plan, the Department of Taxation and Finance tells us it does. See: Department of Taxation and Finance publication 36, March 2015 at page 12.
The Department of Taxation and Finance needs to remove "NYC Teachers' Retirement IRC 403(b) plan" from the list of plans on page 12.
Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by phone at (732) 536-9472, or via email at firstname.lastname@example.org.
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