Recent legislation has repealed the retirement income exclusion for taxpayers having gross income of more than $100,000 per year. The retirement income exclusion generally applies to taxpayers who are at least age 62 or are eligible to receive benefits under Social Security due to a disability. The amount of the exclusion depends on the filing status of the taxpayer. The maximum exclusion amount is $20,000 for married persons filing jointly. The change is effective for tax years beginning on or after January 1, 2005.
The $100,000 threshold is an "all or nothing" proposition. For example, a couple, both age 65, filing a joint income tax return with taxable income of $100,001, may pay as much as $1,105 in additional tax (67% more) than a couple making $99,999; the second couple may exclude a full $20,000 of income received from retirement accounts, while the first couple may exclude nothing.
