09 Jun How will my pension from N.Y. be taxed in N.J.?

Q. I am 55 and will be receiving a pension from New York City when I retire this year. Is it correct that the pension will be taxed in New Jersey and not New York? I also have a tax-deferred annuity with pre-tax contributions in New York but am I expected to pay taxes on the contributions in New Jersey when the money is withdrawn? If I’m taxed twice, isn’t that double dipping?
— Taxpayer

A. Congrats on your retirement.

Let’s start by saying you should meet with a tax preparer who can examine the entirety of your situation and advise.

Here’s what you should know.

For starters, we’re assuming you’re a resident of New Jersey.

Pensions from the New York State and Local Retirement System pensions are not subject to New York State or local income tax, but if you move to another state, that state may tax your pension, said Evan Drury, a chartered financial consultant with U.S. Financial Services in Fairfield.

As far as New Jersey is considered, there is a pension exclusion, he said.

Drury said the amount of the exclusion varies depending on marital status and income. We’re going to assume you’re married filing jointly.

Taxpayers who are 62 years of age or older, or taxpayers eligible for disability payments under the federal Social Security Act, could be eligible. You said you’re 55, so that’s going to be an issue unless you are disabled.

If you were eligible, if your total income is $100,000 or less, your taxable pension can be excluded. If your income is up to $125,000, you can exclude 50% and if it’s up to $150,000, you can exclude 25%.

If your income is higher than 150,000, you’re not eligible, he said.

In terms of your double-dipping question, we’re again assuming you’re a New Jersey resident.

Drury said the funds in question were pre-tax, so they can be taxed in New Jersey — you have not paid taxes on it yet.

“Since the money is tax-deferred — taxes haven’t been paid on this money yet — it’s not double dipping because you received a tax benefit at the time of contribution and have yet to be taxed until the time of withdrawal,” he said.

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This story was originally published on June 9, 2023.

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.