29 Nov Will this pension be tax free?

Q. My boyfriend is a retired fire captain and has been collecting his pension now for five years from the NJ PERS pension system. He is only 52. Can he reap from the retirement income changes in New Jersey being it’s a retirement pension he is collecting?
— Girlfriend

A. Congrats to your boyfriend for being able to retire at such a young age.

But that young age is what’s at issue here.

Generally, New Jersey has been one of the worst states to retire in because of our high income tax, very high property tax, and in most situations, you really cannot deduct much at all, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

“You cannot deduct charitable contributions, carry forward unused losses, and do many other things that you can do on a federal basis,” Lynch said. “But in some areas, such as Social Security, it does give you a nice benefit of not being taxed.”

So will the new tax changes in the state, which come as part of the gas tax bill, help your boyfriend get some new tax-free income?

Not right now, but maybe when he hits age 62.

Lynch offered this, straight from the state’s Treasury Department:

“If you (and/or your spouse/civil union partner if filing jointly) are 62 or older on the last day of the tax year, or you qualify as disabled under Social Security guidelines, you may be able to use the “Pension Exclusion” to exclude all or part of your taxable pensions, annuities, and IRA withdrawals provided your gross income for the entire year before subtracting any pension exclusion does not exceed $100,000.

“The maximum amount you may exclude depends on your filing status. If you are married or in a civil union and file a joint return, you may exclude up to $20,000. If you file as single, head of household, or qualifying widow or widower/surviving civil union partner, you may exclude up to $15,000. If you and your spouse/civil union partner file a separate return, you may exclude up to $10,000. If you file a joint return, and both of you qualify for the Pension Exclusion, you may apply the exclusion to the total taxable pension amount on your return. However, if only one spouse/civil union partner is age 62 or older or disabled, then only the income of the one who is age 62 or older or disabled may be excluded.

“For example: Mr. Miller is 64 and receives a taxable pension of $3,000. Mrs. Miller is 60 and receives a taxable pension of $5,000. The Millers can use the Pension Exclusion to exclude only $3,000 of their total pension income because only Mr. Miller qualifies for the exclusion.”

Lynch recommends your boyfriend speak to his CPA.

On a side note, Lynch has a message for your boyfriend.

“Thank him for his service. As a former volunteer firefighter I know how dangerous a job it is, and that is why I am now a financial planner!” he said.
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This post was first published in November 2016.