Ask the Expert: A tax break on pensions

Your Feb. 11 column said that after age 591/2, New York residents can take $20,000 a year state-tax-free from their retirement accounts. Does this apply separately to a pension from a former employer? Can a married couple take a $40,000 exemption for retirement account withdrawals?

New York's Pension and Annuity Income Exclusion applies to the first $20,000 of annual retirement income from the taxpayer's tax-deferred accounts -- including employer-sponsored pensions, IRAs and annuities -- not from each account separately. (This is different from the New York tax exclusion on all pension income received from federal, state and local governments.)

Every New Yorker qualifies for the $20,000 annual exclusion on turning 591/2. If that was in June 2011, for example, you get the tax exclusion on up to $20,000 of retirement income you received from July through December 2011. A married couple can claim the exclusion for $40,000, but only if each of them qualifies for the full $20,000, says Ed Slott, a Rockville Centre tax accountant. "Let's say a husband took $10,000 a year from his IRA and his wife took $30,000 a year from hers, for example. He can exclude the $10,000 he withdrew. She only gets to exclude $20,000 of her $30,000 withdrawal. She can't pick up the extra $10,000 [exclusion] that he isn't using."

You also get the $20,000 exclusion on annual withdrawals from inherited retirement accounts, regardless of your age, if their deceased owner would have been 591/2, says Barry C. Picker, a Brooklyn tax accountant. But the exclusion applies per decedent, not per beneficiary. In other words, three IRA beneficiaries share one $20,000 exclusion.

The bottom line New Yorkers over 591/2 don't owe state tax on their first $20,000 of annual retirement income. Federal income tax still applies.

Websites with more information bit.ly/wMbO9M and bit.ly/yX3XXC