LEO Retirement Taxes--North Carolina

A friend recently abandoned being a top-notch and ethical (surprisingly enough) career as a police executive to become a horsewoman of leisure in North Carolina. She understands North Carolina offers a tax benefit to retired law enforcement. Can anyone advise if the benefit is for only retirees from NC agencies or does it apply to immigrant retirees from other states?

Better yet, can anyone recommend a tax person in North Carolina conversant with this aspect of tax law?

Enough of this and back to talking guns.

If the LEO had 5 or more creditable years of service as of 8/12/1989 within NC, they're get certain tax benefits i.e. their state pension isn't taxed as income or is greatly reduced.

But it only applies to people retiring from within NC.

This may be what your asking about. Not sure.

Good luck.

Bailey Decision Concerning Federal, State and Local Retirement Benefits

@blues

I qualify under "Bailey" and am retired from federal L.E...NYC and Miami, having never been employed as an LEO in NC.

The state also cannot tax our Thrift Savings Plan (TSP), for those of us that meet the conditions of Bailey.

That said, I'm only personally familiar with working with the federal side of the NC regulations, not those applicable to state and local LE.

Quote:

Bailey Decision Concerning Federal, State and Local Retirement Benefits

As a result of the North Carolina Supreme Court's decision in Bailey v. State of North Carolina, North Carolina may not tax certain retirement benefits received by retirees (or by beneficiaries of retirees) of the State of North Carolina and its local governments or by the United States government retirees (including military). The exclusion applies to retirement benefits received from certain defined benefit plans, such as the North Carolina Teachers' and State Employees' Retirement System, the North Carolina Local Governmental Employees' Retirement System, the North Carolina Consolidated Judicial Retirement System, the Federal Employees' Retirement System, or the United States Civil Service Retirement System, if the retiree had five or more years of creditable service as of August 12, 1989. The exclusion also applies to retirement benefits received from the state's §401(k) and §457 plans if the retiree had contributed or contracted to contribute to the plan prior to August 12, 1989. The exclusion does not apply to retirement benefits paid to former teachers and state employees of other states and their political subdivisions.

A retiree entitled to exclude retirement benefits from North Carolina income tax should claim a deduction on Line 20, Form D-400, Schedule S 2022 Supplemental Schedule, for the amount of excludable retirement benefits included in federal adjusted gross income. Even if all your retirement is excludable under Bailey, you must still file a North Carolina return if you meet the minimum gross income filing requirements. A copy of Form 1099-R or Form W-2 received from the payer must be attached to the return to support the deduction.

For additional information, see the Personal Taxes Division Bulletins.

Rollover Distributions with Respect to Bailey Retirement Plans - General

The Economic Growth and Tax Relief Reconciliation Act of 2001 made numerous changes with respect to pension portability. All distributions from a qualifying Bailey retirement account in which the employee/retiree was "vested" as of August 12, 1989, are exempt from State income tax regardless of the source of the funds contained in the account. Conversely, qualifying tax-exempt Bailey benefits rolled over into another retirement plan lose their character and would not be exempt upon distributions from the other plan unless that plan is a qualifying Bailey retirement account in which the employee was vested as of August 12, 1989.

For more information, see Departmental Directive PD-04-1. For special rules regarding the Optional Retirement Program, see Departmental Directive PD-00-1.

Bailey Retirement Plan Rollover Distribution to a Roth Account

Effective January 1, 2008, distributions from qualified retirement plans could be rolled over into Roth IRA's. Qualified retirement plans include 401(k), 403(b), and 457 plans. A rollover distribution to a Roth account is generally taxable at the time of the rollover and the subsequent distributions from the Roth account are generally not taxable. If the rollover to a Roth account is from a qualifying tax-exempt Bailey retirement account, the rollover distribution is exempt from State income tax and deductible on the State return to the extent the rollover distribution was included as income on the taxpayer's federal income tax return. For more information, see Department Directive PD-14-1.

Thanks, guys. Not hat she will want to hear, but if she wanted a tax break, she could have stayed in Maryland which as that benefir for retirees (as a reward for putting up with all the usual anti-LE stuff from the General Assembly).