§114 Limitation on State Income Taxation of Certain Pension Income

Summary

States must not tax retirement income of a person who is not a resident or domiciliary of that State, as the State itself defines residency. Retirement income covered includes pay from nine kinds of plans: qualified trusts under 401(a) that are tax-exempt under 501(a); simplified employee pensions under 408(k); annuity plans under 403(a) and annuity contracts under 403(b); individual retirement plans under 7701(a)(37); eligible deferred compensation under 457; governmental plans under 414(d); trusts under 501(c)(18); and plans described in 3121(v)(2)(C) or written partner-retirement arrangements. The income must be paid as substantially equal periodic payments at least once a year for life (or joint lives) or for at least 10 years, or as post-employment payments from a plan that provides benefits above the limits in sections 401(a)(17), 401(k), 401(m), 402(g), 403(b), 408(k), or 415. Adjustments for cost-of-living or formulas that limit total payouts do not stop payments from qualifying. The rule also covers retired or retainer pay under chapter 71 of title 10. “Income tax” is as defined in section 110(c). “State” includes political subdivisions, the District of Columbia, and U.S. possessions. A “retired partner” is a partner under 7701(a)(2) who is retired under the partnership agreement. Nothing here changes how section 514 of ERISA applies.