It is difficult to answer such a broad question. One should consider many points when addressing this question. For instance, the rules for federal and state taxes can be different. In regard to Pennsylvania state income taxes, your pension is not taxed, no matter where it comes from. That might not be true, however, for other states. It’s also important to know the type of pension plan you have: whether it’s one you contribute to or one that’s strictly a benefit plan. In addition, the age you receive your pension also plays a factor in determining its eligibility for tax exemption, as well as disability issues.
Retirement planning is complicated. You can get started by reviewing these PICPA resources. Once you have a basic understanding of the issues, be sure to consult a local CPA who can help you review all the factors that ultimately affect your retirement income.
Answered by: William L. Stunkel, CPA, is is director of small business services with Holsinger PC in Wexford, Pa.