Income Tax Exclusion Bill to Help New Jerseyans Plan for Retirement Passes Out of Budget Committee

TRENTON – In an effort to encourage and help more New Jersey workers have secure retirements, the Senate Budget and Appropriations Committee approved legislation that would provide taxpayers a gross income tax exclusion in the amount of contributions made to a qualified retirement plan.

Under the combined bill, S-737/951, sponsored by Senator Joe Lagana, Senator Vin Gopal, and Senator Shirley Turner, contributions from these plans would be taxed upon distribution from the account.

The legislation would bolster actions taken at the federal level, where the government has sought to ensure that American workers have financially secure retirements by providing regulatory oversight of retirement plans, as well as by establishing numerous tax advantages for income set aside for workers in retirement.

“Over the last several decades, as defined-benefit retirement plans have been in decline, defined-contribution plans have shown remarkable growth. With this legislation we want to give employees in New Jersey as many options as possible to secure tax advantages that come with a secure and qualified retirement plan,” said Senator Lagana (D-Bergen/Passaic).

The Lagana-Gopal-Turner legislation seeks to level the playing field by expanding the types of federally recognized retirement savings plans that employees would be eligible to contribute to on a tax-exempt basis.

Under the bill, a “qualified retirement plan” would include:

• a plan established under section 401(a) or section 401(k) of the federal Internal Revenue Code;

• amounts paid for annuity contracts under section 403(b) of the federal Internal Revenue Code, allowed to employees of governments and nonprofits;

• a deferred compensation plan established under section 457 of the federal Internal Revenue Code, allowed for state and local government and authority employees;

• a federal Thrift Savings Plan; and

• a standard Individual Retirement Account, pursuant to section 408 of the federal Internal Revenue Code.

“While many New Jersey workers have been able to enroll in 401K plans to secure their retirements and achieve tax savings, many other residents have not been so lucky. This legislation would level the playing field by expanding the types of federally-recognized retirement savings plans which employees would be able to contribute on a tax-exempt basis, thereby helping them to better plan for their retirement futures,” said Senator Gopal (D-Monmouth).

“The fact that our state treats certain retirement plans differently for tax purposes is not only confusing, it is unfair for educators and not-for-profit employees who are heavily impacted by this disparity. Eliminating a tax on the front end of these investments will bring our state in line with most other states and the federal government and help to encourage more employees to save and plan for their retirement years,” said Senator Turner (D-Mercer/Hunterdon).