Tax law in Iowa allows some people who are receiving retirement benefits to avoid taxation on some or all of those benefits. Here’s an overview.
Not Taxed at All
Iowa does not tax:
- Social Security income
- Benefits paid by the Railroad Retirement Board
- Military Pensions
Taxed But With Exclusions Available
Iowa DOES tax:
- 401(k) and other retirement account withdrawals
- Pensions other than from the military
- Retirement annuities
Now that we’ve established the basics of what’s taxed and what’s not, let’s dive into the pension exclusion.
Iowa allows taxpayers with retirement income to exclude from taxation up to $6,000 if single and $12,000 if married, under the following general circumstances:
- The recipient of the income must be age 55 or older at the end of the year in which the retirement income is received, or
- The recipient of the income must be disabled, or
- The recipient of the income must be a surviving spouse or a survivor having an “insurable interest” in a deceased person who would qualify for the exclusion. For purposes of the exclusion, the term “insurable interest” means the survivor must be the son, daughter, mother or father of the deceased.
John is single, over age 55, and has $10,000 in retirement income from an IRA. John can exclude $6,000 of this income from taxation on his Iowa tax return.
Married Filing Separately
As I’ve written before, the “married filing separately” filing status in Iowa creates all sorts of “fun” situations on a tax return, with allocations needing to be made between the spouses, and those allocations don’t always make sense. More on that in part 2.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”