Pension and Annuity Subtraction Rule Question

[t231]

I am VERY confused!!

Does the Pension & Annuity Subtraction Rule on IT-201 line 29 apply to INHERITED Traditional NON-spousal IRAs? 

Scenario: Inherited a Traditional IRA from a deceased parent who passed at 69 and the tax software said I may be eligible for a subtraction on my NY tax return. There are 2 beneficiaries and the max subtraction for one beneficiary is 20K. 
1. can i take this subtraction in full if my distribution is under 10k?

2. Does this rule APPLY to IRAs?!

Im very confused and frustrated as IRA is not in the title of this rule yet the tax software is prompting me to answer questions regarding the rule. 

[DawnC]

No, you can only subtract the amount that was taxable on your federal return, up to your share of the $20k maximum.   And yes, it applies to IRAs.   

If you received a decedent’s pension and annuity income, you may make this subtraction if the decedent would have been entitled to it, had the decedent continued to live, regardless of your age. 

If any portion of this exclusion was subtracted on the decedent’s personal income tax return, you must first reduce the amount you are eligible to claim by the same amount subtracted on the decedent’s return. The total pension and annuity income exclusion claimed by the decedent and the decedent’s beneficiaries cannot exceed $20,000.

If there is more than one beneficiary: 

• the exclusion is prorated in the same ratio as the distribution, and
• the total exclusion claimed by all beneficiaries may not exceed $20,000

See NY - Common Q & As

[t231]

Thank you for the response @DawnC! I am still a bit confused. Lol

My taxable distribution from my inherited NON-spousal Traditional IRA was 8K. I am one of 2 beneficiaries. Can i subtract the entire 8K? I don’t believe a subtraction was ever taken on the decedents personal tax return because they had not taken any RMDs prior to passing. 

[DawnC]

You can deduct the full $8K on your New York return as long as that $8K is taxable on your federal return.   You can verify the amounts were taxable on your federal return by looking at your Form 1040.   If the $8k is on line 4b (or 5b or 6b), it is taxable on federal return, and you can subtract that amount from NY.     

Your and the other beneficiary's combined subtractions can't be more than 20K.   

How to Preview Form 1040 in TurboTax Online.

Use Forms Mode if you are using the desktop software.

[t231]

Thank you so much @DawnC I appreciate the clarification.

One last question as I saw this come up in other threads regarding this topic. The descendent was NOT a resident of NY however I am currently a full time NY resident. Does that have any bearing on whether I can take the subtraction?

[DianeW777]

No, you are still entitled to the subtraction for the amount on your federal tax return.

• Yes, to the extent included in FAGI not to exceed $20,000. This would qualify for the $20,000 pension and annuity income exclusion provided all the other requirements are met (over 59½, periodic payments, attributable to personal services performed before retirement and an employer- employee relationship exists). The Internal Revenue Code (IRC) requires that recipients of a pension distribution of $10 or more receive a Form 1099-R. However, foreign pension distributions are not typically reported on Form 1099-R. The taxpayer must retain their contribution/distribution documentation to provide to the department if necessary.
• Common FAQs about the Pension Subtraction-NY

[t231]

Thank you @DianeW777! I appreciate the response. I think my original confusion was due to the fact that I am only speaking about an Inherited NON-spousal IRA which I am 50% beneficiary. This us not a pension nor an annuity. My total distribution from the Tradition Inherited non-spousal IRA in 2024 was 8K and the tax software prompted the question whether I al entitled to a subtraction. The decedent passed at age 69 and had not taken their own RMDs prior to passing. If I am understanding correctly I can subtract the entire 8k. 

[t231]

@DianeW777 Sorry for all the typos above. I responded quickly on my phone. Lol

[DianeW777]

Yes, you can deduct the $8.000 from your New York (NY) return because it is included in your federal return and because the deceased was eligible for the deduction due to the age of 69.

• If an estate or trust received pension and annuity income of a decedent, then the estate or trust may make this subtraction if the decedent would have been entitled to it, had the decedent continued to live, regardless of the age of the beneficiary. If the decedent would have become 59½ during 2024, enter only the amount received after the decedent would have become 59½, but not more than $20,000.

Enter the New York State subtraction modifications that apply to you: Instructions IT-225

• as a partner, shareholder, or beneficiary, in Part 2.

@t231