- Designated Roth Accounts in Certain Retirement Plans (401(k), 403(b) and 457(b)
- IRA Distributions for Charitable Purposes
- Nonresident Pension Distributions
- Documentation to Submit with Abatement/Amended Tax Return
- Massachusetts and Federal References
- Prior Law, History of Pensions
Pension contributions are amounts paid into funds by either employees or by their employers on their behalf. Individuals with IRAs also make contributions.
Pension distributions are payments to employees from an employer-funded retirement plan for past services. Individuals with IRAs also receive distributions
Previously taxed contributions, Massachusetts, are contributions for which a Massachusetts deduction was not allowed at the time an individual contributed to certain retirement savings accounts such as an IRA account.
Retirement Account, Individual (IRA) is a retirement plan to which an individual may contribute a maximum amount annually. For joint filers, each may contribute up to the maximum amount allowable. Earnings accumulate tax-free on IRA contributions and depending on the type of IRA, distributions may or may not be taxable. Types of IRAs: Traditional and Roth.
Retirement Plan, Employee: Employers who want to provide retirement benefits for employees customarily establish a pension, profit-sharing or stock bonus plan that qualifies for preferential tax treatment. This includes:
- tax exemption for the fund established to provide benefits;
- deductions by the employer for contributions made to the fund;
- tax deferral for the employee for the employer's contributions and earnings; and
- in some instances, favorable tax treatment of distributions.
Designated Roth Accounts in Certain Retirement Plans (401(k), 403(b) and 457(b)
Elective Deferrals Treated As Roth Contributions – Small Business Jobs Act of 2010 (PL 111–240):
For taxable years beginning after December 31, 2010, participants in government-sponsored plans may be given the opportunity to treat elective deferrals as Roth contributions.
A designated Roth account is a feature in new or existing 401(k), 403(b) or governmental 457(b) plans that permit such plans to accept designated Roth contributions and certain rollovers. It is a separate account that holds designated Roth contributions. If a plan adopts this feature, employees can designate some or all of their elective contributions (also referred to as elective deferrals) as designated Roth contributions, rather than traditional, pre-tax elective contributions.
The amount contributed to a designated Roth account is includible in gross income in the year of the contribution, but eligible distributions from the account (including earnings) are generally tax-free. The employer must separately account for all contributions, gains and losses to this designated Roth account until this account balance is completely distributed.
Massachusetts follows the federal treatment for the following:
- Contributions to a designated Roth account are includible in gross income in the year of the contribution;
The combined amount contributed to 401(k), 403(b) or governmental 457(b) plans designated Roth accounts and traditional, pre-tax accounts in any one year for any individual is limited to $17,500. For taxpayers 50 or older, the maximum contribution is $23,000 ($17,500 regular and $5,500 regular catch-up contributions).
Note: in addition to designated Roth account contributions, taxpayers may also contribute to standard Roth IRAs, limited to $6,500 ($5,500 regular and $1,000 catch-up IRA contributions).
- Income earned on the contributions while in a designated Roth account is excluded from gross income;
- Distributions from a designated Roth account (contributions and associated earnings) are excluded from gross income if:
- a period of five years has passed since January 1 of the year in which the first contribution (including rollovers) was made to your Roth account; and
- taxpayer is at least 59½ years old (or disabled or deceased)
If the requirements for a qualified distribution are not met, and the assets are not rolled-over to another eligible plan, the earnings portion of the distribution will be taxable.
Roth IRA History:
- The Taxpayer Relief Act of 1997established Roth IRAs, individual retirement arrangements that allow contributions that are not tax-deductible. Roth IRA withdrawals are generally tax-free, with certain stipulations.
- The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) extended the Roth concept to 401(k) and 403(b) plans, in which after-tax elective salary deferral accounts have been available since 2006.
- The Small Business Jobs Act of 2010 further extends the Roth concept to governmental 457(b) plans.
A retiring employee who transfers all or part of the assets from one qualified pension plan to another similar qualified pension plan within 60 days will not recognize any income from the transfer to the extent that no income is recognized for federal income tax purposes.
The Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") has made Internal Revenue Code (Code) provisions relating to rollovers, and Massachusetts adopts the current federal Code with respect to these rollovers for tax years beginning on or after January 1, 2002.
For tax years beginning on or after January 1, 2002, Massachusetts follows the current federal Code for the following allowable tax-free direct rollovers:
- traditional IRA rolled over to another traditional IRA;
- traditional IRA rolled over to a qualified employer retirement plan;
- qualified employer retirement plan rolled over to a traditional IRA;
- qualified employer retirement plan rolled over to another qualified employer retirement plan.
Qualified employer retirement plans include:
- Qualified employer retirement plan under 401(a);
- Annuity contract under 403(a);
- TSA and TIAA-CREF retirement plan under 403(b); and
- Governmental deferred compensation plan under 457, but not private sector 457 plan.
Note: For Keoghs under 401; CODA plans under 401(k); SEP plans under 408(k); and SIMPLE plans under 408(p) - Massachusetts follows current Code; if a rollover is tax-free for federal purposes, it is likewise tax-free for Massachusetts purposes.
Rollovers that do not qualify as tax free rollovers:
- traditional IRA rolled over to Roth IRA;
- qualified employer retirement plan rolled over to a Roth IRA;
- indirect rollover, unless specifically excluded from gross income under the 2005 Code.
The Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"):
Massachusetts adopts the provisions set forth in “EGTRRA”, which has made the following Internal Revenue Code (Code) provisions relating to qualified plans and other tax-favored retirement plans:
- increases the federal income tax contribution limits for elective deferrals;
- provides catch-up contributions for those age 50 or older;
- increases portability between plans and accounts by expanding the rollover provisions; and
- makes several other changes related to retirement plans and accounts.
Pension Contributions and Catch-up Amounts - Effective Date for Retirement Plan Conformity:
Under "EGTRRA", Massachusetts retains the reference in Chapter 62 to the 2005 Code for most income tax provisions, but adopts the current Code for the treatment of qualified plans and certain other tax-favored retirement plans. Effective for tax years beginning on or after January 1, 2002, Massachusetts conforms to the following sections of the Code as amended and in effect for the taxable year ("current Code"): IRC §§ 62(a)(1),72, 274(m) and (n), 401 to 420 inclusive (but excluding §§ 402A and 408q), 457, 529, 530, 3401 and 3405.
Contribution and Distribution Exclusions from Gross Income:
All amounts of retirement plan contributions and distributions that are excluded from federal gross income are excluded from Massachusetts income for the qualified plans listed below. Massachusetts conforms to federal law for the Maximum Exclusion Amounts as well as in the treatment of elective deferrals, catch-up contributions, and qualified rollovers of plan proceeds for:
- § 401(k) plans - Qualified Cash or Deferred Arrangements (CODA);
- § 403(b) plans - Tax-Sheltered Annuity Plans (TSA) and Teacher's Insurance and Annuity Association and College Retirement Equities Funds (TIAA-CREF);
- § 457 plans - Massachusetts Government Employees Deferred Compensation Plans;
- § 408(k) plans - SEPs (Simplified Employee Pensions); and
- § 408(p) plans - SIMPLE IRAs (Savings Incentive Match Plans for Employees).
Amounts for exclusion:
|SIMPLE IRA Governed by IRC Section 408(p)- Maximum Exclusion Amounts, And Additional Exclusion Amounts Allowed for Age 50 Catch-up Contributions|
|Tax Year||Maximum Exclusion||Additional Exclusion for Catch-up|
|2013 and 2014||$12,000||$2,500|
|Sections 401(k), 403(b), 457 plan or 408(k) SEP - Maximum Exclusion Amounts (or other applicable amount determined by federal law), and Additional Exclusion Amounts Allowed for Age 50 Catch-up Contributions|
|Tax Year||Maximum Exclusion||Additional Exclusion for Catch-up|
|2013 and 2014||$17,500||$5,500|
The maximum applicable dollar amount of excludable salary deferrals will increase in subsequent tax years in accordance with the tables provided in the Code and subsequent cost-of-living adjustments provided for therein. Also, the additional exclusion allowed for age 50 catch-up contributions will increase in subsequent tax years in accordance with the tables provided in the Code and subsequent cost-of-living adjustments provided for therein.
Massachusetts adopts the current Code where employers taxed under Chapter 62 are allowed a deduction for employer contributions to qualified plans and other retirement plans. In calculating adjusted gross income, Massachusetts generally allows the deductions available under § 404 of the Code. However, the § 404 deduction for contributions on behalf of Code § 401(c)(1) employees (sole proprietors and partners) is specifically disallowed.
Public Law 104-95 prevents any state from taxing income from certain pensions and deferred compensation plans paid to nonresidents of that state.
Nonresidents who Were Former Massachusetts Residents:
Pursuant to Public Law 104-95, Massachusetts exempts from taxation distributions from certain previously taxable pension and deferred compensation income for nonresidents. Those pensions that were exempt under the nonresident regulation remain exempt.
Massachusetts will not tax pension income received by nonresidents if the income is received from any of the following sources:
- a qualified trust under I.R.C. § 401(a) exempt from taxation under I.R.C. § 501(a);
- simplified I.R.C. § 408(k) plans;
- I.R.C. § 403(a) annuity plans;
- I.R.C. § 403(b) annuity contracts;
- I.R.C. § 7701(a)(37) individual retirement plans;
- eligible deferred compensation plans of state and local governments and tax exempt organizations as defined by I.R.C. § 457;
- I.R.C. § 414(d) government plans;
- a trust or trusts described in I.R.C. § 501(c)(18);
- any plan, program or arrangement described in I.R.C. § 3121(v)(2)(C) if payments are made at least annually and spread over the actuarial life expectancy of the beneficiaries, or if payments are spread over at least a ten year period. Such income is also protected from state taxation if the plans are trusts under I.R.C. § 401(a), but exceed limits laid down in I.R.C. §§ 401(k), 401(m), 402(g), 403(b), 408(k) or 415 or any other limitation on contributions or benefits which may apply in the Code;
- non-contributory government plans; and
- military pensions of nonresidents.
- Copy of U.S. Form 1099-R - Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts;
- Rollovers: Statement documenting rollover.
- Nonresident Pension Distributions: Verification of residency on the date of distribution
- M.G.L. Chapter 62, Section 1 as amended by St. 2002, c. 186, s. 1
- M.G.L. Chapter 62, Sections 2(d)(1), 2(d)(1)(D)
- 830 CMR 62B.2.1: Withholding of Taxes on Wages
- 830 CMR 62.5A.1(5)(e): Non-Resident Income Tax
- Public Law 104-95: State Taxation of Pension Income
- TIR 02-18: Tax Changes Contained in "An Act Enhancing State Revenues" and Related Acts
- TIR 93-3: Massachusetts Income Tax Withholding on Eligible Rollover Distributions from I.R.C. s. 401 Qualified Plans and s. 403(b) Annuities
- LR 84-44: Rollover from a Keogh Plan to an IRA
- LR 80-33: Rollover Between Qualified Pension Plans
- I.R.C. §§ 401(c)(1); 401(k); 402(c); 403(b); 404; 408(d)(3)(A); 457(b), (e)(1)(A)
- The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRAA)
- Tables for Increased Amounts in Subsequent Years found at §§ 402(g)(1); 408(p)(2)(E); 414(v)(2); 457(e)(15)