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Ask the Expert: Tax breaks for retirees in New York State

I am 71 years old, and as a former civil servant, I don't pay New York State taxes on my retirement income. I also have a tax exemption on the first $20,000 per year that I take out of my IRA. My question: When I'm required to take my RMD next year, can I deduct the first $20,000 and only pay state taxes on the rest of the RMD?

Yes.

To clarify for other readers, you're describing two distinct New York State tax breaks. One applies only to retired civil servants. The other is available to all state residents.

As a former civil servant, you qualify for New York's unlimited tax exclusion on income from federal, state and local government pensions.

And like all state residents over age 59½, you get a tax exemption on the first $20,000 of annual income received from tax-deferred retirement accounts like individual retirement accounts and 401(k) plans. Any eligible New Yorker who took $12,000 from her 401(k) plan and $8,000 from her IRA this year could exclude the entire $20,000 from her 2021 taxable income, for example.

Retirement account beneficiaries gets the same $20,000 tax break, regardless of their age, provided the deceased account owner was at least 59½. (But the decedent had only one annual $20,000 exemption. So if she had three beneficiaries, they must divide that $20,000 annual exclusion between them.)

As a former civil servant, if your annual income consisted of $50,000 from government pensions and $35,000 in IRA distributions, you would only owe New York State taxes on $15,000 of that $85,000 income. But, of course, the entire $85,000 would still be subject to federal tax.

The bottom line

New Yorkers over age 59½ pay no state income tax on their first $20,000 of annual income from tax-deferred retirement accounts.

More information

bit.ly/NYSIndividualTaxpayerInfo

bit.ly/RPEATaxationByStates

TO ASK THE EXPERT Send questions to act2@newsday.com. Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.

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