Alabama Retirement

[Snaggletooth]

Exempt retirement in Alabama is hard to define, and the Alabama Code, Section 40 (Revenue) is of little help.

Obviously, the trolls in Montgomery have exempted teachers and state employees who draw off the State retirement system. Also pension plans and retirement plans for professors in Alabama universities. Not too hard to figure that out, and how it came to be.
And Federal pensions - entirely tax free just as the abovementioned.

Retirees from TVA were not exempt, and took AL to court, and won. Then all Military Retirees (even though they originally had a $4750 exemption). Then retirees from the phone company - South Central Bell/Bellsouth, etc. became exempt. Then retirees from Lockheed, and the buyout from GM Saginaw plant in Decatur, AL.

There is no mention of these exemptions, other than TVA, in the Alabama Code. The reason I'm interested is because I don't know how much retirement in Alabama is even taxed at all any more. Lockheed, on their own letterhead, stated that their retirement was exempt upon "agreement with the Alabama Dept of Revenue."

It's like if any company suddenly jumps up and doesn't want their retirement taxed, they get a free pass.

I can't find any guidance whatsoever. ChEAr$ and other Alabama preparers, can you lend me some wisdom??

[ChEAr$]

Exempt retirement in Alabama is hard to define, and the Alabama Code, Section 40 (Revenue) is of little help.

I can't find any guidance whatsoever. ChEAr$ and other Alabama preparers, can you lend me some wisdom??

Sure. Here's a quickie course. In addition to government retirees and social security
recipients, "Payments from a “Defined Benefit Retirement
Plan” in accordance with IRC 414(j). (Contact your retirement
plan administrator to determine if your plan qualifies."

Now bear in mind that a defined benefit plan is one of those now old fashioned company pension plans into which recipient did not contribute and which are growing extinct it seems.

The Alabama DOR website used to have a link to a page on which they listed all the ones they knew about. Ahhh. there, they still have it. See:

http://www.revenue.alabama.gov/incometax/DEFINEDBEN.pdf

Now here's a caveat. Some retirees from companies with defined benefit plans might
have had the option of rolling their balances over into IRA's and did so, thinking their
money would be safer. But by doing this, they lost the comfort of excluding any payments from Alabama tax, since they are now payments out of an IRA and thus
fully taxable to Alabama!

Now a war story. Lady retired from U S civil service as a long time teacher, mostly overseas in Germany. She then continued teaching in Fairfax, VA, and after some years
retired also. Now she has the U S civil service 1099R, one from State of Virginia and
another from Fairfax county retirement system. She then moves "back home" to Alabama,but like some faithful clients continues to "send her stuff" to preparer up there.
Three years later I get her for a client and look over those three years returns. Yep,
All three pensions were on those three years returns! Amendment time of course, with
some very nice refunds WITH interest.

Moral of the story: if you have a new client with income in a state you're not familiar with,
do NOT just rely on the software to sort it all out for you. Download and read the instructions from that state.

[Nashville]

Tiaa Cref

Harlan, excellent information with the website provided above.

But you bring up a point. I have a half-dozen professors and retirees from Univ-Ala-Huntsville, just as you might have some from Auburn U.

Many of them have retirement programs from TIAA-CREF. This is not a state retirement program, but instead was originally designed for Professors to have a "portable" retirement they could fund, which would travel with them from state-to-state. One of mine started at Univ of Rhode Island, than Cal-Berkeley, then Univ Colorado, before ending his career at Univ Ala Huntsville. He has had TIAA-CREF from his early days in Rhode Island.

As you probably know, TIAA-CREF is much more similar to an IRA than a state-sponsored retirement system. Professors were allowed to payroll deduct in nearly all American universities, plus rollover some of their retirement programs into TIAA-CREF. Most states did not wish to honor their state retirement systems for professors who were leaving to take employment in other states, so TIAA was created to accommodate a somewhat vested reitrement fund that a professor could pack up and take with him when he left.

How do you treat TIAA-CREF as to Alabama taxation? I have been exempting it.

[dyne]

I do not like to take exception to what Harlan Lunsford says because he (you) is one smart,
knowledge guy. But often defined benefit plans DO have the employee contribute
into it. I worked for the government and paid in a fortune over the years. Since I retired
years ago I was able to deduct my cost in the plan over the first three year period of my
retirement. That rule is long-gone. Now such employees normally use the General Rule
which calculates an exclusion so that for each year their retirement benefits are NOT
entirely taxed but they can recover their cost over a number of years. Post Office employees
are a good example IF they retired in the past. I have a friend who has BOTH defined benefit
and 401(k) plan but he is tax preparer who lives elsewhere so I do not prepare his return.
Thank you Harlan for great information you have given me and others on the message board
I am forever leaving off NOT when I meant to, making it sound the reverse of what I said.
Best wishes.

[ChEAr$]

Harlan, excellent information with the website provided above.

But you bring up a point. I have a half-dozen professors and retirees from Univ-Ala-Huntsville, just as you might have some from Auburn U.

Many of them have retirement programs from TIAA-CREF. This is not a state retirement program, but instead was originally designed for Professors to have a "portable" retirement they could fund, which would travel with them from state-to-state. One of mine started at Univ of Rhode Island, than Cal-Berkeley, then Univ Colorado, before ending his career at Univ Ala Huntsville. He has had TIAA-CREF from his early days in Rhode Island.

As you probably know, TIAA-CREF is much more similar to an IRA than a state-sponsored retirement system. Professors were allowed to payroll deduct in nearly all American universities, plus rollover some of their retirement programs into TIAA-CREF. Most states did not wish to honor their state retirement systems for professors who were leaving to take employment in other states, so TIAA was created to accommodate a somewhat vested reitrement fund that a professor could pack up and take with him when he left.

How do you treat TIAA-CREF as to Alabama taxation? I have been exempting it.

Nope, never seen that from an Alabama resident/professor/instructor. And don't remember seeing it covered in the standard form 40 instructions, either.

Just looked at the TIAA CReef homepage and see they offer a variety of different plans, including IRA's. Since none of their offerings seem to fit the bill of code 414j, the payments would not be excludable under the defined benefit plan category. And since
not mentioned specifically, you just have to apply general rules for pensions, meaning
using cost as an exclusion depending on when a person retired (pre 1991, afterwards,
whatever, or the general rule), or if an IRA, the rules are what they are.