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wl39
Returning Member

If a defined benefit pension was taken as a lump sum and that lump sum was rolled into a IRA, are the distributions from that IRA taxable in Alabama state income tax?

 
7 Replies
SweetieJean
Level 15

If a defined benefit pension was taken as a lump sum and that lump sum was rolled into a IRA, are the distributions from that IRA taxable in Alabama state income tax?

Was it rolled to a Traditional IRA within 60 days?  Are you now taking distributions from that IRA? Are you age 59.5 or more?
wl39
Returning Member

If a defined benefit pension was taken as a lump sum and that lump sum was rolled into a IRA, are the distributions from that IRA taxable in Alabama state income tax?

Yes, yes and yes. In Alabama defined benefit pension payments are not taxable, but I rolled a lump sum distribution into an IRA and have been taking withdrawals from that IRA.
Critter
Level 15

If a defined benefit pension was taken as a lump sum and that lump sum was rolled into a IRA, are the distributions from that IRA taxable in Alabama state income tax?

Sorry ... but when you converted the pension plan to an IRA you changed the nature of the beast ... was not the best move in hind sight.
wl39
Returning Member

If a defined benefit pension was taken as a lump sum and that lump sum was rolled into a IRA, are the distributions from that IRA taxable in Alabama state income tax?

Thanks, Critter#2
vhbf1
New Member

If a defined benefit pension was taken as a lump sum and that lump sum was rolled into a IRA, are the distributions from that IRA taxable in Alabama state income tax?

According to documentation from AL state tax department, the distribution is only partially taxable (growth in the IRA). The distribution and taxable amounts are to be reported on Form 40, Part 1, lines 5a and 5b. I can't get Turbo tax to move the amounts from lines 4a and 4b to lines 5a and 5b.
Critter
Level 15

If a defined benefit pension was taken as a lump sum and that lump sum was rolled into a IRA, are the distributions from that IRA taxable in Alabama state income tax?

IRA and 401(k) distributions in retirement: Taxed in Alabama
Even though traditional pension benefits aren't subject to tax in Alabama, amounts paid through IRAs and employer-sponsored defined-contribution retirement plans such as 401(k) plan accounts are included in taxable income for Alabama income tax purposes. Alabama does recognize Roth IRA and Roth 401(k) plan distributions as tax-free, matching the federal treatment of these retirement accounts. (For more on IRAs and how they work, head on over to our IRA Center.) https://www.fool.com/knowledge-center/alabama-tax-laws-for-retirement-social-security.aspx

inthebiz
New Member

If a defined benefit pension was taken as a lump sum and that lump sum was rolled into a IRA, are the distributions from that IRA taxable in Alabama state income tax?

Dont think information above is correct, i know of people getting this exemption for years (articles on turbo tax and state of alabama)(PPA, P.L. 109-280).  As long as you dont comingle your lump sum pension, the principle amount is Alabama state tax exempt, any gains are eligible for state tax. (formula on partial pension distributions worksheet)

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