14 Dec Income limits for the pension exclusion

Q. My wife and I get Social Security of $2,300 a month, and she has a pension. Our total income is just over $3,000 a month. We both turn 66 next year and we have $1.3 million in 401(k)s, annuities and savings. My employer wants me to keep working and I very well may, but I do not want to run afoul of New Jersey’s income allowance to avoid state taxes. Will my wife’s pension count toward the New Jersey income allowance?
— Retiring soon

A. Here’s the lowdown on the pension exclusion.

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 if 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, said Ken Bagner, a certified public accountant with Sobel and Co. in Livingston.

Bagner said the maximum amount you may exclude depends on your filing status.

For 2017, if you are married or in a civil union and file a joint return, you may exclude up to $40,000. That amount will go up by $20,000 a year until it reaches $100,000 in 2020.

And for singles, the exclusion is $30,000 in 2017, and it’s $20,000 for those married filing separately.

Just keep that income level under $100,000. If you earn a dollar more, you won’t qualify for any of the exclusion.

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This post was first published in December 2017.