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IOWA TAXATION OF PENSIONS, 401(K) PLANS

December 20, 2004

Enigmatic Iowa-blogger State29 notes a letter to The Des Moines Register worrying about whether Iowa will start treating pension income better than 401(k) income.

The worry is probably misplaced. The current Iowa tax law (Section 422.7(31) - scroll down if you follow the link) provides an exclusion for up to $6,000 in retirement income per taxpayer. It is defined as follows:

   For a person who is disabled, or is fifty-five years of 
   age or older, or is the surviving spouse of an 
   individual or a survivor having an insurable interest in 
   an individual who would have qualified for the 
   exemption under this subsection for the tax year, 
   subtract, to the extent included, the total amount of a 
   governmental or other pension or retirement pay, 
   including, but not limited to, defined benefit or defined 
   contribution plans, annuities, individual retirement 
   accounts, plans maintained or contributed to by an 
   employer, or maintained or contributed to by a 
   self-employed person as an employer, and deferred 
   compensation plans or any earnings attributable to the 
   deferred compensation plans...
                                                (emphasis added)

The reference to defined contribution plans embraces 401(k) plans.

It is unlikely that Iowa would try to distinguision between pension and 401(k) plans for many reasons, not least of which is that a pension - only exclusion would be ridiculous. If additional pension breaks are enacted, only non-qualified plans run any risk of lost benefits because they are generally directed towards higher-paid employees.

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