Were Washburn University retirement-plan benefits exempt from Kansas income tax, and what happened after a rollover to another retirement account?
Apply this to your situation
This page answers the general question as of 2008. Ezel answers yours, under current Kansas tax law, with citations.
Plain-English summary
Kansas created a subtraction modification for retirement and pension benefits paid to retired Washburn University employees under the university retirement plan. The provision, enacted in Section 25 of 2008 House Substitute for Substitute for Senate Bill 309 and codified in K.S.A. 79-32,117(c)(xx), applied across tax year 2008 even though the statutory language became effective July 1, 2008.
The timing rules were:
- Benefits received before January 1, 2008 did not qualify and remained subject to Kansas income tax.
- Benefits received on or after January 1, 2008 qualified for the subtraction when included in federal adjusted gross income, so they were not subject to Kansas income tax. The result was the same for a lump sum or payments over time.
The notice drew an important line for rollovers out of the Washburn plan. The rollover itself produced no Kansas subtraction because the transfer was not included in federal adjusted gross income. Once the funds entered an IRA or another qualified retirement account, they lost their character as Washburn-plan payments. Later taxable distributions from that receiving account therefore did not qualify for the Washburn subtraction and remained subject to Kansas income tax.
What this means for you
Retired Washburn University employees
Direct distributions from the university plan received in 2008 or later qualified for the Kansas subtraction under this notice. Keep documents showing that the payment came directly from the Washburn plan.
People who rolled Washburn benefits into another account
The account destination mattered. Once Washburn funds were rolled into an IRA or other qualified plan, later distributions were treated as payments from that new account, not from the Washburn plan, and did not receive the subtraction.
Common questions
Q: Were Washburn retirement benefits received in 2007 exempt?
A: No. The notice says benefits received before January 1, 2008 remained taxable.
Q: Did a 2008 lump-sum payment qualify?
A: Yes, if it was a qualifying Washburn-plan benefit included in federal adjusted gross income. Lump-sum and periodic payments were treated the same.
Q: Was the rollover itself taxable?
A: The notice says no Kansas modification was made at rollover because the transfer was not included in federal adjusted gross income.
Q: Were later IRA distributions traceable to Washburn funds exempt?
A: No. After rollover, the funds lost their Washburn-plan character, so later payments from the receiving account did not qualify for the subtraction.
Citations and references
- K.S.A. 79-32,117(c)(xx) — subtraction for qualifying Washburn University retirement and pension benefits.
- 2008 House Substitute for Substitute for Senate Bill 309, § 25 — enacted the subtraction modification.
- IRC § 403(b) — the type of defined-contribution plan described as Washburn's basic retirement plan.
Subject
Kansas Income Tax Treatment of Certain Washburn University Retirement Benefits
Source
- Landing page: Kansas Department of Revenue Policy Information Library
- Original document: Notice 08-04
Original ruling text
Notice
Notice Number: 08-04
Tax Type: Individual Income Tax
Brief Description: Kansas Income Tax Treatment of Certain Washburn University Retirement
Benefits
Keywords:
Approval Date: 07/01/2008
Body:
KANSAS DEPARTMENT OF REVENUE
NOTICE 08-04
Kansas Income Tax Treatment of Certain
Washburn University Retirement Benefits
Advice has been requested concerning the income tax treatment of certain payments received from the Washburn
University retirement plan.
Generally
The process of calculating an individual’s Kansas income tax starts with the person’s federal adjusted gross income.
Under Kansas law, those items which are subject to federal tax will be subject to Kansas tax unless there is a specific
modification provided for by the Kansas income tax act.
House Substitute for Substitute for Senate Bill 309 was passed during the 2008 Legislative Session. Section 25 of the
Bill amends that part of K.S.A. 79-32,117 which permits taxpayers to make certain subtraction modifications in
calculating their Kansas income tax. Specifically, the amendment allows a subtraction modification for:
(c)(xx) Amounts received by retired employees of Washburn university as retirement and pension
benefits under the university retirement plan.
According to information published by Washburn University, their basic retirement plan is a defined
contribution plan operating under Section 403(b) of the Internal Revenue Code. As a rule, amounts received
from a 403(b) account are included in an individual’s federal adjusted gross income and, as a result, are subject
to Kansas income tax. Because of the amendment made by the Bill, however, retirement and pension benefits
received by retired employees of Washburn University under the university retirement plan generally will not be
subject to Kansas income tax.
Benefits Received Before January 1, 2008
The new language in the Bill is effective July 1, 2008, but will apply for all of tax year 2008. A subtraction
modification will not be allowed for retirement benefits received before January 1, 2008, regardless of the
manner in which the benefits were paid. As a result, these benefits will be subject to Kansas income tax.
Benefits Received On or After January 1, 2008
Generally. A subtraction modification will be allowed for retirement benefits received on or after January 1,
2008 which are included in the recipient’s federal adjusted gross income. As a result, these benefits will not be
subject to Kansas income tax. This is true whether the benefits are taken in a lump sum or paid out over time.
Rollovers. Federal law generally permits rollovers of funds accumulated in a 403(b) plan into a variety of
qualified retirement accounts. Because these transfers are not included in federal adjusted gross income no
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modification is made on the Kansas income tax return.
In some cases the funds which are rolled over may be placed into a segregated account, such as a traditional
IRA. In many cases, however, rollovers from a 403(b) plan are deposited into qualified accounts where they will
be commingled with other retirement funds. By way of example, the receiving account for Washburn University
retirement plan distributions may be another employer retirement plan. Once funds paid out of the Washburn
University retirement plan are rolled over into a qualified account they lose their characterization as Washburn
University retirement plan payments and become assets of the qualified account.
Payments from rollover accounts are received in a variety of ways, including as a lump sum and as annuitized
payments (periodic or monthly payments), such as a monthly payment from an annuity. When a payment is
received, it will be included in federal adjusted gross income. However, none of the payments made from a
rollover account are paid directly by or from the Washburn University retirement plan.
Because a rollover of a Washburn University retirement plan payment deposited into a qualified retirement
account is not included in federal adjusted gross income in the tax year when the Washburn University
retirement plan payment was made and it has lost its characterization as a Washburn University retirement 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.
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: 07/07/2008 Date Modified: 07/07/2008
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