Are 403(b) Deferrals Subject to State or Local Taxes?

Q: I know that traditional elective deferrals to our 403(b) plan are not subject to federal taxes, but what about state taxes?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: You are correct that 403(b) deferrals are generally not subject to federal income tax at the time they are deferred. In many states, 403(b) deferrals are also generally not subject to state taxes at the time of deferral. However, state and local tax treatment may differ, and 403(b) deferrals may be subject to taxation in certain jurisdictions.

Further, state tax laws are subject to change, and the tax treatment of deferrals may vary depending on an individual’s circumstances. Retirement plan participants should consult a qualified tax professional regarding the taxation of retirement plan deferrals under applicable state or local laws.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issmarketintelligence.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.