01 Mar Are my 401(k) withdrawals free of N.J. tax?

Q. My only income is from a 401(k). Is that eligible for the pension exclusion? I only saw references to pensions, annuities or IRA distributions.
— Retired

A. New Jersey, known for its high taxes, enacted the pension exclusion as incentive for retirees to stay in the state.

Yes, your 401(k) distributions are eligible for the pension exclusion if you otherwise qualify, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

“There is an income limitation, so you need to calculate carefully,” he said.

To qualify, you must be 62 or older or permanently disabled or blind, Karu said.

A single person making $100,000 or less can exclude $75,000 from New Jersey tax, while a married couple can exclude $100,000. The exclusion is phased out for people who earn between $100,001 and $150,000, and there is no exclusion for those making $150,001 or more.

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This story was originally published on March 1, 2022.

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