Tax Planning for Retirees

Federal Restrictions on State Income Taxes

Partner Pensions Exempt from Nonresident State Income Tax. – Under federal law, the state where a taxpayer earned retirement benefits (whether under a qualified or nonqualified plan) generally may not tax the benefits after the taxpayer has moved to another state. To qualify for the exemption, the retirement benefits must consist of a series of substantially equal periodic payments received not less frequently than annually over the life expectancy of the recipient or for a period of not less than 10 years. Congress has now made it clear the exemption applies to retired partners (as well as to retired employees). (Pub. L. No. 109-264 (2006); 4 U.S.C. § 114(b)(1)(I).)