05 Mar I cashed out my pension money. What’s the tax?

Q. What are the New Jersey state tax consequences when a 14-year state worker leaves his job and takes a total withdrawal of his pension money? How much of the state income reported – $40,000 – can be excluded due to previously being taxed while working?
— Concerned

A. We’re going to make a big assumption here.

It does not appear that you have availed yourself of a permissible rollover of your state pension withdrawal.

Had you rolled it over within 60 days of receipt, it would not be taxable, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

“You are astute to question how one calculates the nontaxable portion of the withdrawal from the Sec. 403(b) plan maintained by the state since under New Jersey law no reduction in wages was permitted, unlike a 401(k) plan where wages are reduced resulting in fully taxable future distributions,” Becourtney said.

Because you received a distribution of your entire account balance, the calculation is not terribly complicated, he said.

“You simply need to subtract the total of your contributions made over your 14-year employment period,” he said.

In the event you do not have records to make this calculation, contact the New Jersey Division of Pensions and Benefits for the amount, he said.

“If for argument’s sake you had made contributions totaling $25,000, that would leave $15,000 as taxable for New Jersey,” he said. “If you have reached age 62, depending on your overall income reported, you may be entitled to a pension exclusion for as much as the entire amount otherwise taxable for New Jersey.”

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This story was originally published in March 2024.

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