PA Tax Code for 401k Distribution "State Type Code"

[BLC3387]

Pennsylvania asks for specific info on a particular 401K distribution. The "State Type Code" drop-down listing doesn't seem clear to me.  How do I determine the right code for this distribution? 1099-R notes "... Retirement Savings Plan" within the address.

[BillM223]

The state type code is this list (from a previous year, but I think the list is the same):

Many of the items are straightforward, the confusion usually comes in knowing what "I'm eligible; plan's eligible".

First, a retirement plan has to satisfy the rules in Pennsylvania to be tax-free. The state apparently doesn't define this, so you may want to read this article from the Pennsylvania Institute of Certified Public Accountants to help understand it.

Second - and this probably affects more taxpayers - you have to be at or older than the "normal" retirement age for your plan in order to exclude the pension income in Pennsylvania. Naturally, this varies from plan to plan.

Does this help?

[BLC3387]

Bill,

Thank you for the quick response. Your note helps somewhat, but I'm still not sure.

First, the drop downs are the same except for adding:

   KSOP - Taxable ESOP within a 401(k), and

   KSOP - Non-Taxable ESOP within a 401(k).

I'm 66 so I'm past any penalty or other age category. I do have other pensions that fit the "I'm eligible, plan's eligible" so there's no state (PA) tax there, but on this 401(k) withdrawal, I did pay 20% up front when processing the withdrawals (there were several but my 1099-R has the 20% amount correctly recorded for federal tax). 

I guess my mystery is one of those KSOP categories, since it's not from an IRA, unless there's a reason that it fits the "I'm eligible" category. Am I making sense?

Best,

Barry

[BillM223]

Normally, in your situation, the distributions from a 401(k) plan would not be taxable in Pennsylvania. However, this is not a simple 401(k) - it is the hybrid between a 401(k) plan and an ESOP.

The Pennsylvania website that I referred to above has this statement: "However, certain federally qualified deferred compensation plans constitute taxable “severance pay” ... "

I think you are going to have to contact the plan administrator for the KSOP and ask them if they are a taxable or nontaxable KSOP for Pennsylvania purposes (I noticed that the program behaved differently depending on which it was). IN the worst case, you may have them contact the Department of Revenue for the state.

Sorry, since non-taxable retirement income is not defined by statute, I don't have the crystal ball necessary to see which one it is. 

Good luck with this.

[BLC3387]

Thank you. I'll ask those questions!

B

[BillM223]

Great! And if you get some answers, please come back and tell us; I'd like to hear about those KSOPs...