Ftb Pub. 1005 - Pension And Annuity Guidelines - Franchise Tax Board (Page 2 of 8) in pdf

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annually) made over the life or life expect-

as a lump-sum distribution. Your pension is

The exception which allows a surviving

ancy of the participant or those of the par-

attributable solely to services you performed in

spouse beneficiary to treat the remaining

ticipant and the designated beneficiary or

Washington prior to your move. You received the

amounts as includible in income in the same

a period of not less than 10 years; or

lump-sum distribution in February 1998, after you

manner that the deceased spouse would

2. A payment received after termination of

became a California resident. The taxable

have included them. For California purposes,

employment under a plan program or

amount of the lump-sum distribution for federal

the remaining amounts are includible as

arrangement maintained solely to provide

purposes is $80,000.

income on the final return of the deceased

retirement benefits for employees in

spouse.

Determination: You are a full-year California

excess of the limitations on contributions

resident in 1998. As a California resident, you

Get FTB Pub. 1005A, California Tax Treatment

or benefits imposed by the IRC.

are taxed on all income, regardless of its source.

of Roth IRA for more information.

Retirement income includes any retired or

Although the lump-sum distribution is attributable

retainer pay received by a member or former

to services you performed in Washington, the full

E Individual Retirement

member of a uniform service computed under

$80,000 is taxable by California because you

Arrangements (IRAs)

Chapter 71 of Title 10, United States Code.

were a resident when you received the

distribution.

California does impose tax on retirement income

The California treatment of IRAs is generally the

received before 1/1/96, by a nonresident from

Example 4 — You worked in Georgia for 20

same as the federal treatment. For information

sources within California. Retirement income has

years. You retired and began receiving your

on the federal treatment of IRAs, refer to federal

a source within California if the services that

monthly pension on January 1. Your pension is

Pub. 590, Individual Retirement Arrangements

gave rise to the income were performed in this

$2,000 a month. Because you did not contribute

(IRAs) (Including SEP-IRAs and SIMPLE IRAs).

state.

to the plan, your pension is fully taxable. On

May 1, you moved permanently to California.

Military Pension. As a nonresident of California,

IRA Deduction

you are not taxed on your military pension

Determination: You are a part-year resident of

The following is a summary of the California IRA

received after 12/31/95.

California. While you are a nonresident, only your

deductions allowed.

California source income is taxable by California.

A military pension received by a nonresident prior

While you are a resident, all your income, regard-

to 1/1/96 is taxable by California to the extent the

Years

IRA Deduction

less of its source, is taxable by California.

pension has a California source. The military

1987 – California law is the same as fed-

Because your pension is attributable to services

pension has a California source for the portion of

through eral law. The IRA deduction is the

you performed in Georgia, your pension has a

time you served in California only if you were a

1998

lesser of $2,000 or 100% of your

Georgia source. None of the pension received

California resident. Get FTB Pub. 1032, Tax

compensation. If you are covered by an

while you were a nonresident is taxable by Cali-

Information for Military Personnel.

employer’s retirement plan or if you file

fornia. However, the pension received during the

a joint return with your spouse who is

period when you are a California resident (May 1

Residents of California Receiving

covered by such a plan, you may be

through December 31) is taxable by California.

entitled to only a partial deduction or

an Out-of-State Pension

Therefore, $16,000 ($2,000 × 8 months) is the

no deduction at all, depending on your

taxable portion of the pension to enter on Sched-

California residents are taxed on ALL income,

income. See the federal instructions

ule CA (540NR), line 16b, column E. Do not

including income from sources outside California.

for more information. You can elect to

make an adjustment on Schedule CA (540NR) to

Therefore, a pension attributable to services per-

designate otherwise deductible contri-

exclude any portion of the Georgia pension from

formed outside California but received after you

butions as nondeductible. However,

total income.

became a California resident is taxable in its

you do not have to elect the same

Military Pension. A California resident is taxed

entirety by California.

treatment for California purposes that

on all income, regardless of source. Therefore, a

you did for federal purposes. An elec-

Example 1 — You worked 10 years in Texas,

military pension received by a California resident

tive deferral of up to $6,000 may be

moved to California and worked an additional 5

is taxable by California, regardless of where the

made to a SIMPLE IRA.

years for the same company. You retired in Cali-

military service was performed.

fornia and began receiving your pension, which

1982 – California law was different from

Example 5 — You are a California resident

is attributable to your services performed in both

through federal law. The maximum federal

receiving your military pension. You served 20

California and Texas. The taxable amount of

1986

deduction for an individual was

years in the military. You were never stationed in

your pension for federal purposes is $10,000.

$2,000, and was available to active

California during your military career. Your mili-

participants in qualified or government

Determination: You are a full-year resident of

tary pension included in federal AGI is $30,000.

retirement plans and to persons who

California. As a California resident, you are taxed

contributed to tax-sheltered annuities.

Determination. Your military pension of $30,000

on all your income, regardless of its source.

The California IRA deduction was the

is taxable by California even though your pension

Therefore, the amount taxable for California pur-

lesser of $1,500 or 15% of compensa-

does not have a California source. As a Califor-

poses is $10,000, even though a portion of the

tion with an additional deduction for a

nia resident, you are taxed on all income from all

pension is for the services you performed in

nonworking spouse, for a maximum

sources.

Texas. Do not make an adjustment on Schedule

deduction of $1,750. An IRA deduction

CA (540), or Form 540A, Side 2, Part I to

was not allowed if you were an active

exclude any of the pension from your income.

D Roth IRA

participant in a qualified or government

Example 2 — You worked in New York for 20

retirement plan or contributed to a tax-

years. You retired and moved permanently to

The California treatment of Roth IRAs is gener-

sheltered annuity.

California on January 1. While living in California,

ally the same as the federal treatment. Refer to

1976 – California law was the same as

you begin receiving your pension attributable to

federal Form 8606, Nondeductible IRAs, for the

through federal law. The IRA deduction for

the services performed in New York.

definition of a Roth IRA. However, there are

1981

an individual was the lesser of $1,500

some specific differences between federal and

Determination: You are a full-year resident of

or 15% of compensation. An IRA

California law since California did not conform to

California. As a California resident, you are taxed

deduction was not allowed if you were

the technical corrections made to the IRC by the

on all your income, regardless of its source.

an active participant in a qualified or

Internal Revenue Service Restructuring and

Therefore, your pension is taxable by California,

government retirement plan or contrib-

Reform Act of 1998 (Public Law 105-206). As a

even though the pension has a New York

uted to a tax-sheltered annuity.

result, California does not allow:

source. Do not make an adjustment on Schedule

•

1975 – California law was different from fed-

CA (540), or Form 540A, Side 2, Part I to

The accelerated income inclusion election for

eral law. California did not allow an

exclude your New York pension from your

conversions from traditional IRA to Roth IRA

IRA deduction. Therefore, income

income.

which allows you to elect to report the entire

earned in 1975 and 1976 on the 1975

taxable gain in 1998. For California purposes,

Example 3 — In December 1997, you retired

contribution was taxable. The federal

the taxable gain must be spread over four

and moved permanently to California. Prior to

deduction was the same as for years

years.

your move, you elected to receive your pension

1976-1981.

Page 2

FTB Pub. 1005 (REV. 1998)

Ftb Pub. 1005 - Pension And Annuity Guidelines - Franchise Tax Board Page 2

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