Other pension and annuity income (Tax Law, § 612[c] [3-a]).

(i) Pension and annuity income not subject to the modification referred to in paragraph (1) of this subdivision and not in excess of $20,000, received by an individual may be subtracted in determining New York adjusted gross income providing the following conditions are met:

(a) the pension and annuity income must be included in Federal adjusted gross income;

(b) the pension and annuity income must be received in periodic payments (except where otherwise provided in this paragraph);

(c) the pension and annuity income must be attributable to personal services performed by such individual, prior to such individual's retirement from employment, which arises from either an employer-employee relationship or from contributions to a retirement plan which are tax deductible under the Internal Revenue Code ( e.g., individual retirement account [IRA] or self-employed retirement [Keogh]); and

(d) such individual receiving the pension and annuity income must be 59 1/2 years of age or over.

(ii) Distributions from an individual retirement account (IRA) or a self-employed retirement plan (Keogh) will qualify for the pension and annuity income modification whether such distributions are periodic payments or a lump sum distribution. However, the modification referred to in this paragraph will not be allowed for a lump sum distribution from a self- employed retirement plan (Keogh) if the Federal special 5-year averaging method of determining the Federal income tax due on such lump sum distributions is elected (see section 603 of the Tax Law and Part 103 of this Title for provisions relating to determining the New York State separate tax on the ordinary income portion of a lump sum distribution where the special 5-year averaging method has been elected for Federal income tax purposes).

(iii) Where a husband and wife each receives a pension or annuity and each qualifies for the pension and annuity income modification as described in subparagraph (i) of this paragraph, then each spouse shall compute his or her own pension and annuity income modification as if separate Federal income tax returns were filed. The combined pension and annuity income modification may not exceed $20,000 for each spouse. Each spouse may not claim any unused portion of the other spouse's modification.

(iv)

(a) Where a beneficiary receives a payment which qualifies as a pension or annuity created by the decedent, such payment will come within the definition and meaning of “pension and annuity” as defined in this paragraph. The beneficiary will be entitled to the same pension and annuity income modification that the decedent would have been entitled to, had such decedent continued to live, regardless of the age of the beneficiary.

(b) If the deceased has more than one beneficiary, the $20,000 pension and annuity income modification must be allocated among the beneficiaries in the same ratio as the distribution is shared so that the total pension and annuity income modification of all beneficiaries does not exceed $20,000 in the aggregate.

(v) Where an individual claims a disability income modification under paragraph (3) of this subdivision, the combined amount of the disability income modification and the pension and annuity income modification cannot exceed $20,000.

(vi) Pension and annuity income not included in New York State adjusted gross income ( e.g., railroad retirement benefits) may not be included in the computation of the pension and annuity income modification. The following examples illustrate the application of the provisions of this paragraph. A resident husband and wife included pension and annuity income of $25,000 in their Federal adjusted gross income on their 1992 joint Federal income tax return. The husband retired on January 1, 1992 at the age of 61 and received pension and annuity income in periodic payments totaling $15,000 for the full year. The wife retired on March 1, 1992 at which time she was 59 years of age. The wife received pension and annuity income in periodic payments totaling $10,000 for the 10-month period from March 1, 1992 to December 31, 1992. The wife became 59½ years of age on June 1, 1992. The pension and annuity income received by each spouse was attributable to personal services performed by each as employees prior to their retirement. They filed a joint 1992 New York State resident personal income tax return. The husband is entitled to claim a pension and annuity income modification of $15,000 and the wife is entitled to claim a pension and annuity income modification of $7,000, which is the amount of pension and annuity income she received during the seven months after she became 59½ years of age (June through December), for a total pension and annuity income modification of $22,000 ($15,000 plus $7,000). A resident husband and wife included pension and annuity income of $45,000 in their Federal adjusted gross income on their 1992 joint Federal income tax return. Both individuals were 62 years of age and retired for the full year of 1992. The husband received pension and annuity income in periodic payments totaling $30,000 for the full year. The wife received pension and annuity income in periodic payments totaling $15,000 for the full year. The pension and annuity income received by each spouse was attributable to personal services performed by each as employees before their retirement. They filed a joint 1992 New York State resident personal income tax return. The husband is entitled to claim a pension and annuity income modification limited to the maximum amount allowed of $20,000 and the wife is entitled to claim a pension and annuity income modification of $15,000, for a total pension and annuity income modification of $35,000 ($20,000 plus $15,000).