Pennsylvania Taxation of Contributions to and Distributions from Eligible Pennsylvania Retirement Plans

Type of Compensation Employer contributions to - Taxable Description Nontaxable Description Employer-sponsored eligible Pennsylvania retirement plans; and/or Employer contributions to plans or trust s are taxable if constructive receipt by employee Employer contributions are not taxable when contributed, provided there is no constructive receipt under PA PIT rules. Nonqualified deferred compensation plans that are non-eligible Pennsylvania retirement plans and/or Employer contributions to plans or trust s are taxable if constructive receipt by employee Employer contributions are not taxable when contributed, provided there is no constructive receipt under the PA PIT rules. Federal qualified plans that are not eligible Pennsylvania retirement plans Treated as a nonqualified deferred compensation plan Employer contributions are not taxable when contributed, provided there is no constructive receipt under the PA PIT rules Distributions of employer contributions and investment earnings on non-eligible employer contributions from employer sponsored nonqualified deferred compensation plan Always taxable as compensation Distributions of employer contributions and investment earnings on employee contributions from employer sponsored nonqualified deferred compensation plan meeting the requirements of an eligible Pennsylvania retirement plan Any payment of employer contribution and investment earnings prior to retirement age are taxable PA compensation Not taxable if the amounts are received at or after retirement age and after retirement from service with the employer Distributions of employer contributions from employer- sponsored qualified federal retirement plan that is non-eligible Pennsylvania retirement plan (e.g., profit-sharing plan providing no option to receive an annuity or an employee stock ownership plan) Taxable as compensation. The fact that the plan is a qualified plan for federal income taxpayers is not controlling. The plan is not an eligible Pennsylvania retirement plan. ESOPs may be qualified federal plans, but they are non-eligible Pennsylvania retirement plans. Distributions of employee contributions and investment earnings on employee contributions Distributions received before retirement age Distributions of employee contributions from an eligible Pennsylvania retirement plan Taxable to extent of excess determined under the cost recovery method for amounts received prior to retirement After retirement age, not taxable Distribution of employee contribution from a nonqualified deferred compensation plan that is not an eligible Pennsylvania retirement plan Taxable to extent of excess determined under the cost recovery method Not taxable - only to extent of amounts previously included in income on prior PA-40, Individual Income Tax Returns and/or amounts contributed Distribution of employee contributions from a qualified federal plan which is not an eligible Pennsylvania retirement plan e.g. profit-sharing plan not providing an option for an annuity of ESOP employee stock ownership plan Taxable to extent of excess determined under the cost recovery method Not taxable - only to extent of amounts previously included in income on prior PA-40, Individual Income Tax Returns and/or amounts contributed If you invested in a retirement annuity that is not part of an employer-sponsored program or a commonly recognized retirement program, you have PA-taxable income when you begin receiving annuity payments. You must report the difference between the amount you receive and your previously taxed investment as taxable gain on a PA-40 Schedule D, Sale, Exchange, or Disposition of Property. (If you receive periodic payments, you use the cost-recovery method to report the taxable gain.) Annuities (other than employer sponsored retirement plan annuities) To the extent of previously taxed investment Roth IRA – Federal Contributions not deductible Distributions are includable in income to the extent that contributions were not previously included if made before the individual for whom the account is maintained obtains age 59½ and retires from service or if the plan makes no provision for payments at regularly recurring intervals continuing at least until the participant’s death. Traditional IRA – Federal Contributions not deductible Amounts withdrawn from an IRA are includable in income to the extent that contributions and income earned on such contributions were not taxed previously except - Payments, including lump sum distributions, made on or after retirement and reaching the age of 59½ years; Payments received at regularly recurring intervals during periods of disability by reason of disability; Payments paid to the estate or designated beneficiary of the participant by reason of the participant's death; Payments that are rolled over into another IRA or into a qualifying old age or retirement benefit program where the transferred amounts are not includable in income for federal income tax purposes. Nondeductible IRA – Federal