What kind of retirement income do you have from Pennsylvania?

[sugersam5]

Hi-

Had withdrawals taken from 401K during 2020 and received:

a 1099R for 401K pre-tax portion (401k is from my last ER, I also retired, service + age (60), in Dec. 2019)

a 1099R for Roth portion (very small amount was pulled from designated Roth for some of the withdrawals I made)

also,

a 1099R for excess Roth contribs in 2020 (had no earned income, caused the excess) that corrected it in 2021 and added it to Turbo Tax (a 2021 1099R) to account for it now and disregard it (2021 1099)  in 2020 (had no earnings)

Last 1099R, I think does not relate to my question below, though I added.

Based on what Eligible Retirement plans are in PA (see NOTE B below)) my 401K won't be eligible (?), CORRECT?

 What option could I pick for this question:

Q on Turbo Tax screen: "What kind of retirement income do you have from Pennsylvania?"

1-I am eligible; plan is eligible in PA (no PA tax) or…. (I thought this applies, but not sure and when I do pick it the State portion owed (not all withdrawals from 401k I had State to be withheld) based on Fed info. changes to Refund of what was held for state in 2020)

2-I am not eligible yet; plans is eligible in PA or

3-Traditional / Roth IRA: I am over 59 1/2 or

4-Traditional / Roth IRA: I am under 59 1/2 

(All the other options definitely do not match my status or retirement plan/acct_ KSOP, ESOP, Military, Rollover, etc...)

NOTE A: I don't recall this question in 2019 return and at that time I had a W-2 (employed for at least 11 months of it) & a withdrawal from my 401K (1099R rec'd) as well. Only difference this yr (2020) I had no W-2 (Retired, perhaps this is a key?? that was given the choice that I picked/guessed for now), but withdrawals from 401K and Roth IRA (the excess situation).

Am a bit up in the air_ any help is greatly appreciated.

Sorry this got to be long, but I thought I'd provide some PA Retirement Plan's tax info below as well. Perhaps the answer is in that and I am not keen enough to grasp it!

NOTE B: This is from PLCPAorg, from a 2019 blog:

Pennsylvania does not tax commonly recognized pension, old age, or retirement benefits paid after becoming eligible to retire and retiring. Pennsylvania does not follow federal law concerning certain retirement plans, and specific Pennsylvania rules determine what portion is taxable for Pennsylvania. 

Pennsylvania does not tax income reported on a 1099-R from an eligible retirement plan. But what is an eligible Pennsylvania retirement plan? The State Employees Retirement System, the Pennsylvania Municipal Employees Retirement System, and the U.S. Civil Service Commission Retirement Disability Plan are eligible plans. None of these distributions are taxable for Pennsylvania tax purposes.

Additionally, these four requirements must be met in an eligible Pennsylvania retirement plan.

• The plan is written and has been communicated to employees.
• The plan establishes eligibility requirements for separation, old age, infirmity, or long-time service.
• The plan provides recurring payments after separation of service until death.
• The plan does not permit distributions until termination of employment, except for disability or the return of employee previously tax contributions.

[ErnieS0 · Accepted solution]

The code on Form 1099-R determines whether your 401(k) withdrawal is taxable to Pennsylvania. However, you retired after 59 ½ and your 401(k) is an eligible plan so it should be tax exempt.

Code 7 Normal Distribution. This distribution from an eligible Pennsylvania retirement plan is not taxable if you met the plan requirements (the age and/or years of service required by the plan) for retirement, and retired after meeting those requirements.

Unlike the federal income tax law, contributions to a 401(K) or contributions to other types of retirement plans are considered part of the employee's taxable compensation and are subject to withholding requirements. The contributions are treated the same, whether made inside or outside a cafeteria plan.

However, when you retire and start receiving distributions, the amount you withdraw from your 401(K) plan is not subject to PA personal income tax. That is the reason you are seeing a PA tax refund. Your 401(k) provider should not have withheld state tax.

Related Resource:

Are my contributions to a 401(K) plan excluded from employer withholding?