Maryland income taxation of withdrawals from a 403b plan of previously-taxed contributions made in a prior state of residence.

[jnmgordon]

I have a 403b retirement account from working at a private university in Massachusetts until I retired. Massachusetts taxed these contributions until 1998 and I had contributions to this account dating from before 1998. Since these contributions were already taxed in Massachusetts, that state exempts distributions from this account from state taxable income until these previously-taxed contributions have been recouped. I began taking my RMD from this 403b in January 2021 and moved to Maryland from Massachusetts in October 2021. Are the distributions I received after I became a resident of Maryland taxable on my Maryland income tax return or are they still exempt from state income taxation since I have not yet recouped the entire amount of the previously-taxed contributions? If they are still tax exempt, where do I indicate this on my Turbotax Maryland resident income tax return?

[DaveF1006]

Yes, If you are 65 or older or totally disabled (or your spouse is totally disabled), you may qualify for Maryland's maximum pension exclusion of $34,300 in 2021 under the conditions described in Instruction 13 of the Maryland resident tax booklet. If you're eligible, you may be able to subtract some of your taxable pension and retirement annuity income from your federal adjusted gross income. This information I am providing can be found here.

This subtraction applies only if:

1. You were 65 or older or totally disabled, or your spouse was totally disabled, on the last day of the tax year; and
2. You included on your federal return income received as a pension, annuity or endowment from an "employee retirement system." Please note that these include qualified defined benefit and defined contribution pension plans, 401(a) plans, 401(k) plans, 403(b) plans, and 457(b) plans.
3. A traditional IRA, a Roth IRA, a simplified employee plan (SEP), a Keogh Plan or an ineligible deferred compensation plan does not qualify.

Complete the Pension Exclusion Computation Worksheet shown in Instruction 13 in the Maryland resident tax booklet. Be sure to report all benefits received under the Social Security Act and/or Railroad Retirement Act on line 3 of the pension exclusion worksheet - not just those benefits you included in your federal adjusted gross income. This calculation involves the taxable amount reported on your 1099R Box 2A amount which should have your pre-taxed contributions factored in the amount reported in Box 2A.

[jnmgordon]

I was a bit confused by your answer. Does "yes" mean the withdrawals are taxable unless we qualify for the Maryland pension exclusion?

[AmyC]

Correct, each state has its own laws and MD taxes pensions not eligible for the exclusion. MA, being unusual, even let's you know how other states tax here.