Did a KPERS lump-sum retirement payment and its earnings stay exempt from Kansas income tax after rollover to another qualified account?
Apply this to your situation
This page answers the general question as of 2007. Ezel answers yours, under current Kansas tax law, with citations.
Plain-English summary
The 2007 Legislature changed the Kansas tax treatment of KPERS lump-sum rollovers. Amended K.S.A. 74-4923 provided that a KPERS lump-sum retirement payment and all earnings on it retained their Kansas tax-exempt status after rollover to a qualified retirement account, whether the funds were kept separate or commingled with other retirement funds.
That changed part of the Department's earlier Notice 05-04, which had said a KPERS lump sum lost its character and became taxable after rollover. The rollover section was revised; Notice 05-04's treatment of direct one-time payments and monthly payments remained valid.
The enacted legislation did not extend the same statutory change to the State Board of Regents retirement plan. Language covering that plan had been removed before enactment, so Notice 05-05 remained in force.
Notice 07-05 nevertheless clarified an important Regents-plan distinction. Transfers between approved providers or accounts that remained within the plan's transferability rules — including qualifying movement from a mandatory account to an approved voluntary account or between voluntary accounts — retained tax-exempt status. Later distributions of those funds were not subject to Kansas income tax. The notice distinguished those plan-governed transfers from a rollover to a privately held account outside the plan rules.
What this means for you
KPERS retirees
A qualifying KPERS lump sum and its earnings remained Kansas-tax-exempt after rollover to a qualified retirement account, even if commingled with other retirement money.
Regents-plan participants
The 2007 statutory rollover change did not cover the Regents plan. Keep documentation showing that any movement of funds stayed within the plan's approved transferability rules if claiming continued exempt treatment.
Common questions
Q: Did a KPERS rollover lose its Kansas exemption after the 2007 change?
A: No. The lump sum and its earnings retained exempt status in a qualified retirement account.
Q: Did the same statutory amendment apply to the Regents retirement plan?
A: No. The Regents language was removed before enactment, so Notice 05-05 remained in effect.
Q: Could Regents funds move between approved plan accounts without losing exemption?
A: Yes, when the transfer complied with the plan's transferability rules. The notice says later distributions of those funds remained nontaxable.
Citations and references
- K.S.A. 74-4923 — KPERS benefit, lump-sum rollover, and earnings exemption.
- K.S.A. 74-4901 et seq.; 74-4951 et seq.; 74-4918; 74-4964; 74-4964a.
- K.S.A. 74-2925 and IRC § 403(b) — Regents retirement-plan provisions discussed.
- 2007 Senate Substitute for House Substitute for House Bill 2457.
- Notices 05-04 and 05-05 — prior guidance revised or clarified in prose by this notice.
Subject
Kansas Income Tax Treatment of Certain Payments from KPERS
Source
- Landing page: Kansas Department of Revenue Policy Information Library
- Original document: Notice 07-05
Original ruling text
Notice
Notice Number: 07-05
Tax Type: Individual Income Tax
Brief Description: Kansas Income Tax Treatment of Certain Payments from the Kansas Public
Employees Retirement System (KPERS)
Keywords:
Approval Date: 07/30/2007
Body:
KANSAS DEPARTMENT OF REVENUE
OFFICE OF POLICY AND RESEARCH
NOTICE 07-05
EFFECT OF CHANGES MADE DURING
THE 2007 LEGISLATIVE SESSION ON
NOTICE 05-04 AND NOTICE 05-05
This Notice is being issued to advise interested parties that because of action taken during the 2007 Legislative
Session, part of Notice 05-04, Kansas Income Tax Treatment of Certain Payments from the Kansas Public Employees
Retirement System (KPERS), issued by the Department of Revenue on May 20, 2005, has been revised. A related
notice, Notice 05-05, Kansas Income Tax Treatment of Certain Payments from the Regents Retirement Plan, issued by
the Department of Revenue on June 2, 2005, continues to be in full effect.
Introduction
On May 20, 2005 the Kansas Department of Revenue issued Notice 05-04, Kansas Income Tax Treatment of Certain
Payments from the Kansas Public Employees Retirement System (KPERS). In the section of the Notice captioned
“Roll-Over Payments” the Notice provided that lump-sum payments received from KPERS and rolled over into a
privately held account lose their tax exempt status and become subject to Kansas income tax. Specifically, the last
paragraph of this section of the Notice stated:
Because rollover of a KPERS payment deposited into a qualified retirement account is not included in federal
adjusted gross income in the tax year when the KPERS payment was made and it has lost its characterization as
a KPERS payment, payments from that account are not exempt from Kansas income tax. Therefore, no
modification is made on the Kansas income tax return for a payment from a rollover account.
On June 2, 2005 the Department issued Notice 05-05, Kansas Income Tax Treatment of Certain Payments from the
Regents Retirement Plan. In the section of the Notice captioned “Transfer and Roll-Over Payments” the Notice
provided that lump-sum payments received from the Regents Retirement Plan and rolled over into a privately held
account lose their tax exempt status and become subject to Kansas income tax. Specifically, the Notice stated:
Because rollover of a Plan payment deposited into a qualified retirement account is not included in federal
adjusted gross income in the tax year when the Plan payment was made and it has lost its characterization as a
Plan payment, payments from that account are not exempt from Kansas income tax. Therefore, no modification
is made on the Kansas income tax return for a payment from a rollover account.
Changes During the 2007 Legislative Session
Page 2
The Joint Committee on Pensions, Investments and Benefits recommended introduction of Senate Bill 180 into the
2007 Legislative Session. As introduced the Bill affected the roll-over of a lump sum payment received from either
KPERS or the Regents retirement plan. The Bill amended K.S.A. 74-4923 by inserting new language, in italics, to
provide in part, that:
(b) Any annuity, benefit, funds, property or rights created by, or accruing to any person under the provisions of
K.S.A. 74-4901 et seq. or 74-4951 et seq., and amendments thereto, including, but not limited to, for all taxable
years beginning after December 31, 2000, amounts received as a lump-sum payment at retirement as provided in
K.S.A. 74-4918, 74-4964 or 74-4964a, and amendments thereto, and all earnings thereof, and amounts received
as lump-sum or annuitized payment from the retirement plan sponsored and maintained by the state board of
regents pursuant to K.S.A. 74-2925, and amendments thereto, and all earnings thereof, shall be exempt from any
tax of the state of Kansas or any political subdivision or taxing body of the state, and such lump-sum payment at
retirement and such amount received as a lump-sum or annuitized payment shall retain such tax exempt status
even if a retirant elects to roll over such lump-sum payment at retirement or such amount received as a lump-
sum or annuitized payment into a qualified retirement account whether segregated from or commingled with
other retirement funds . . .
Following introduction of the Bill the provisions of SB 180 were amended. In strike out and bold text the amended
language read as follows:
(b) Any annuity, benefit, funds, property or rights created by, or accruing to any person under the provisions of
K.S.A. 74-4901 et seq. or 74-4951 et seq., and amendments thereto, for all taxable years beginning after
December 31, 2000, amounts received as a lump-sum payment at retirement as provided in K.S.A. 74-4918, 74-
4964 or 74-4964a, and amendments thereto, and all earnings thereof, and amounts received as lump-sum or
annuitized payment from the retirement plan sponsored and maintained by the state board of regents pursuant to
K.S.A. 74-2925, and amendments thereto, and all earnings thereof . . . . [shall be exempt from Kansas income
tax] . . . . and such lump-sum payment at retirement and such amount received as a lump-sum or annuitized
payment, and all earnings thereof, shall retain such tax exempt status even if a retirant elects to roll over such
lump-sum payment at retirement or such amount received as a lump-sum or annuitized payment, and earnings,
into a qualified retirement account whether segregated from or commingled with other retirement funds . . .
The amended provisions of SB 180 were subsequently combined with provisions from other bills into Senate
Substitute for House Substitute for HB 2457. The Conference Committee Report Brief for Senate Substitute for
House Substitute for House Bill No. 2457 notes:
SB180 was recommended for introduction by the Joint Committee on Pensions, Investments and Benefits. . . .
Reference to the State Board of Regents Retirement Plan was removed by the Senate Committee, leaving only
reference to the Kansas Public Employees Retirement Plan, the Kansas Police and Fireman’s Retirement Plan,
and the Retirement Plan for Judges which are part of the Kansas Public Employees Retirement System. The
Senate Committee also added clarification that earnings are to be exempt from state taxes.
As finally passed and enrolled the amended provisions of HB 2457 affect only the roll-over of a lump sum payment
received from KPERS. The amended statute, K.S.A. 74-4923 now states, in part, as follows:
(b) Any annuity, benefit, funds, property or rights created by, or accruing to any person under the provisions of
K.S.A. 74-4901 et seq. or 74-4951 et seq., and amendments thereto, including but not limited to, for all taxable
years beginning after December 31, 2000, amounts received as a lump-sum payment at retirement as provided in
K.S.A. 74-4918, 74-4964 or 74-4964a, and amendments thereto, and all earnings thereof, shall be exempt from
any tax of the state of Kansas or any political subdivision or taxing body of the state, and such lump-sum
payment at retirement, and all earnings thereof, shall retain such tax exempt status even if a retirant elects to
roll over such lump-sum payment at retirement, and earnings, into a qualified retirement account whether
segregated from or commingled with other retirement funds . . .
Effect of Legislative Changes On Notice 05-04 And Notice 05-05
Page 3
Because of the amendments to K.S.A. 74-2923 the provisions of Notice 05-04 found in the section captioned “Roll-
Over Payments” have been revised to proved that amounts received by a KPERS member as a lump sum payment and
subsequently rolled over into a qualified retirement account, whether segregated from or commingled with other
retirement funds, are exempt from Kansas income tax. [ See Revised Notice 05-04] The other provisions of Notice 05-
04 that deal with “Direct One-Time Payments” and with “Monthly Payments” are still valid.
Because language which referred to the retirement plan sponsored and maintained by the State Board of Regents
deleted from the introduced version of Senate Bill 180 are not included in the amendments to K.S.A. 74-2923 passed
by the Kansas Legislature, the treatment of lump-sum or annuitized payments from this plan has not changed. The
provisions of Notice 05-05 remain in full force and effect.
Clarification Of Notice 05-05
The section of Notice 05-05 captioned “Transfer and Roll-Over Payments” provides, in part, that:
At any time before retirement, a participant can transfer funds accumulated under the Plan from one
alternate investment provider to another, subject to the established policies of the approved companies and
in accordance with applicable Internal Revenue Service requirements. Because these transfers are not
included in federal adjusted gross income no modification is made on the Kansas income tax return.
For a participant who has terminated employment, the Plan’s transferability rules continue to govern funds
accumulated under the Plan. However, if the participant later participates in another employer’s Internal
Revenue Code Section 403(b) defined-contribution retirement plan, the transferability rules of the
subsequent employer’s plan will govern funds accumulated under the Plan. Because these transfers are not
included in federal adjusted gross income no modification is made on the Kansas income tax return.
Advice has been requested about a situation where a retiree “rolls over” monies in a mandatory Plan account to an
account or carrier that is approved and receives voluntary Plan contributions, or rolls over monies from one voluntary
account to another. As long as these roll-overs are made in accordance with the Plan’s transferability rules, these
monies retain their tax exempt status. Therefore, when the money is distributed to the retiree it is not subject to
Kansas income taxes.
Taxpayer Assistance
Additional copies of this notice, forms or publications are available from our web site, www.ksrevenue.org. If you
have questions about income tax, please contact:
Taxpayer Assistance Center
Kansas Department of Revenue
915 SW Harrison St., 1st Floor
Topeka, KS 66612-1588
Phone: 785-368-8222
Fax: 785-291-3614
Date Composed: 07/30/2007 Date Modified: 07/30/2007
Return to KSA Listing
Get today's answer for your situation
You just read a 2007 ruling on this question. Ezel checks current Kansas tax law and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the authority it relies on.