If you are planning on retiring in Maryland, do NOT rollover your employer sponsored retirement plan, 401k, 403B, 401a, 457, and TSP unless you want to pay more in tax.
And when I say more in tax, I mean much, much more.
Maryland tax law allows you to exclude $29,900 from your employer sponsored plan once you are over 65 years old, per taxpayer. Which means a married couple could exclude nearly $60k from taxable income.
Maryland also excludes your entire Social Security income from taxes too. So if you plan right you could have around $100k income, or more, TAX FREE in the state of Maryland.
Yet if you make the common mistake by rolling over your employer plans to iras you are going to pay a lot more tax. Not good!
The easiest thing retirees can do to live comfortably in retirement is to control their expenses. One of the largest expenses is taxes. So, reduce your taxes and you have less income needs to pay the bills.
How do you reduce taxes? Well, in Maryland, it’s not to have taxable income by rolling over your employer plan to an IRA.
I’ve linked to the state document which discusses the Maryland Pension Exclusion. Now, this does not say explicitly the Thrift Savings Plan is exempt. But given it is an Employer sponsored retirement plan, i.e, a qualified retirement plan, I feel rather safe saying the TSP falls under the Maryland Pension Exclusion rules.
These rules do explicitly state that IRAs do NOT qualify though. Could not be any clearer.
IRA = bad in Maryland for tax.
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My FERS annuity will be at least 50k, so I will get the exclusion with that. It wont matter if I roll my TSP into an IRA.
It would nice if you didn’t assume all of your viewers were straight. I hope you correct your language.
This not very useful and misleading for people have are FERS employees. Because we pay both into Social Security and pension, you get the smaller of the two amounts after you subtract Social Security from the allowable amount. In many cases for many employees that have worked 25 or more years in the federal government, because their Social Security will be fairly high this exemption is absolutely useless. Most people that are older under the old system before FERS, which did not pay into Social Security, this would be a great benefit, but most of those people have already retired. So for the average government worker that still working and sees this video be aware that this won’t be helpful to you in anyway likely.
Maryland State Delegate Brooks sponsored HB14 in the 2019 legislative session, which would have caused IRA withdraws to be treated as excludable from income, just like other qualified retirement plan income. Unfortunately, the bill did not get out of committee.
http://mgaleg.maryland.gov/mgawebsite/legislation/details/hb0014?ys=2019rs
I'll post here if a similar bill is filed for the 2020 session.
Over the years, bills have been introduced in the Maryland General Assessmbly (the state legislature) to make IRA income excludable just like pension, 401(k), and other qualified retirement plan distributions. However, the bills have never gotten out of committee
In case you're wondering why IRA distributions are excludable, here is a very brief explanation: When the exclusion law was passed in the 1970's (or sometime around then), federal government employees did not participate in Social Security and 401(k) plans were brand new, having started in 1978. IRAs came out in 1974. The legislators did not want to give private sector employees an unfair advantage (at least in the eyes of the legislators) over government employees, so they did not include IRA income as excludable. Nowadays, federal government employees partcipate in Social Security so it no longer makes sense to limit the exclusion to just 4xx plan distributions, but Maryland state legislators have not been willing to change the law. (There are, of course, a lot of federal government employees in Maryland.)
Great video I just shared this with several of my coworkers!