If we move to N.J., how will our income be taxed?

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Q. My husband and I live in North Carolina and we’d like to move to New Jersey to be closer to family. I’m a retired teacher, 66, with a $58,000 pension while my husband, 65, is still working, with a salary of $75,000. With combined income of more than $100,000, would we get the pension exclusion? How would 401(k) withdrawals be treated?
— Trying to plan

A. Welcome to New Jersey.

Let’s go over how the pension exclusion works.

Both individuals and married couples qualify for the exclusion if they are age 62 or older, or disabled as defined by Social Security, and if your total income for the entire year was $100,000 or less, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

He said it’s important to note that New Jersey income excludes certain types of federally taxable income such as Social Security and U.S. government interest income.

“For qualifying individuals, the retirement income exclusion for married filing joint in 2020 and beyond is $100,000 and $75,000 for singles,” he said.

The exclusion is a cliff, meaning that if you go $1 over the $100,000 threshold, then all of the income is subject to taxation, Maye said.

So in the years while your husband continues to work and you collect your pension, if your New Jersey income exceeds $100,000, you would not be entitled to any pension exclusion, he said.

“As long as your income for New Jersey remains below $100,000, you would be entitled to full pension exclusion against retirement income such as pension income and retirement plan distributions from 401(k) and IRAs,” he said.

Any 401(k) distribution would count towards income also.

However, if you do not fully use the entire pension exclusion, you might be able to use the unclaimed pension exclusion to exclude other types of income such as wages, interest, and dividends.

“In order to qualify for the unclaimed pension exclusion, you both need to be over 62, your income needs to be less than $100,000, and your earned income from wages, net profits, and distributive income from partnerships must be $3,000 or less, and you did not use the maximum pension exclusion,” he said.

You can read more about the pension exclusion on the state’s website.

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This story was originally published Dec 28, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.