Pension pitfalls

Readers of Richard J. Magid's article on retirement ("A plan that helps retirees – and Maryland." Aug. 12) should be aware of the income-tax consequences.

Converting a 401(k), 403(b), 457(b) or other "employee retirement system" as defined in Maryland law, to an IRA, SEPP or ineligible deferred compensation plan makes any distributions ineligible for the Maryland income-tax pension exclusion. The pension exclusion exempts up to $26,100 (less Social Security received) from state and county income tax for people 65 or older.

Using Mr. Magid's figures of $833 per month received, a Harford County taxpayer could have to pay $781 in state and county income taxes as a result of the conversion. If the taxpayer qualified for the full pension exclusion, he or she could have to pay over $2,000 due to a conversion. While this plan definitely helps Maryland, it doesn't do much for retirees.

As companies do away with traditional retirement plans and more people depend on IRAs as their main retirement income, a few state legislators have introduced bills in Annapolis to have IRAs qualify for the pension exclusion. These bills have never made it out of committee. Incredibly, the Maryland office of America's predominant organization representing retired people has refused to support these bills.

R. Eller, Havre de Grace

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