New federal law restricts state taxation of nonresidents' pensions.
This new law, effective Jan. 1, 1996, precludes source taxation of distributions from qualified retirement and annuity plans, simplified employee pensions, tax-sheltered annuity contracts, individual retirement accounts, deferred compensation plans of state and local governments and tax-exempt organizations (under Sec. 457), governmental plans (under Sec. 414(d)) and pre-June 25, 1959 pension trusts (under Sec. 501 (c) (18)).
It also precludes source taxation of distributions from nonqualified deferred compensation plans if those distributions are part of a series of substantially equal periodic payments (not less frequently than annually) made for:
* The life or life expectancy of the recipient (or the joint lives or joint life expectancies of the recipient and the recipient's designated beneficiary); or
* A period of not less than 10 years.
This treatment also applies to payments received after termination of employment under a "mirror plan" that is a nonqualified retirement plan maintained by an employer solely for the purpose of providing benefits exceeding certain Internal Revenue Code limits on contributions to, and benefits from, qualified plans.
The benefits provided under a mirror plan are those benefits that would have been provided under a qualified plan, but for the limits on contributions and benefits described in the chart at left.
|Printer friendly Cite/link Email Feedback|
|Publication:||The Tax Adviser|
|Date:||May 1, 1996|
|Previous Article:||Eleventh Circuit directs Tax Court to develop test for substantial understatement penalty.|
|Next Article:||Mediating with the IRS.|