PA SERS Employee Retirement Question

[uffbros]

I received $3380 lump sum distribution when I separated from the Pennsylvania Employee's Retirement system. I was a security officer there. I was 58 years old when I separated. What do I choose when it asks for the Basis of retirement income? Is it 0 or is it the $3380? Is there a penalty since I'm not 59.5 years old when receiving this? At the beginning it asks State Type Code...Which do I select? Is it early distribution from retirement plan? Is it I'm eligible,plans eligible(No PA Tax)? I'm not eligible, plans eligible in PA? Thanks

[LenaH]

In general, SERS pension payments are subject to federal income tax but exempt from Pennsylvania state and local income tax for PA residents.

Your basis of the payment is the sum of the nondeductible contributions minus any withdrawals or distributions of nondeductible contributions. Since the amount has never been previously taxed, and you received a tax benefit for the the contribution, then you would have to be taxed on it when you withdraw it. Therefore, your basis is $0. 

Generally, if you take a distribution from your retirement plan before you turn 59 1/2, you will have to pay an additional 10% tax on the distribution. There are exceptions to this, such as retiring due to a disability. 

The distribution code is in Box 7 of your 1099-R. 

[uffbros]

Thanks for your reply. Yes I retired at age 58. So if I stayed to 59.5,which I am now there would have been no penalty....right? Turbo Tax article said that SERS is not taxable.

[ErnieS0 · Accepted solution]

Yes. Your lump sum payment would not have been taxable had you waited until normal retirement age.

Your retirement is NOT taxable for PA income tax if you retired AFTER meeting the eligibility requirements for separation from service by retirement based on old age, infirmity, long-continued service, or a combination of old age and infirmity and long continued years of service.

The code in Box 7 of your 1099-R will help decide whether your retirement is taxable to PA.

Refer to How do I know if the amount on my 1099R (1099-R) is taxable on my PA Personal Income Tax Return?