Are required minimum distributions from a New York City Teachers' Retirement IRC 403(b) tax-deferred annuity plan exempt from New York State personal income tax?

Plain-English summary

Robert Weitzman, a retired New York City high school teacher, asked the Department whether the required minimum distributions he receives from his New York City Teachers' Retirement IRC 403(b) plan are exempt from New York State personal income tax. Weitzman, then seventy-five years old, had participated in the plan through a salary reduction agreement while employed by the Board of Education of the City of New York, and he was now drawing the required minimum distribution from that plan.

The Department traced the plan's legal framework: Education Law § 3109-A lets New York City teachers agree to a salary reduction in order to purchase a tax-deferred annuity; that program is implemented as the New York City Teachers' Retirement System's tax-deferred annuity program under NYC Administrative Code § 13-582; and § 13-582.a and § 13-582.f incorporate by reference NYC Administrative Code § 13-561, which grants a broad exemption from state and local tax (and from levy, garnishment, and similar process) for pensions, annuities, retirement allowances, and other benefits and rights accrued under the retirement system.

Because that City Administrative Code exemption directly covers the distributions Weitzman received from his 403(b) plan, the Department held them exempt from New York State personal income tax under § 13-561, without needing to reach the separate question of whether Tax Law § 612(c)(3)(i) - the general subtraction for pensions paid to state and local government employees - would also apply.

What this means for you

Retired NYC teachers with a 403(b) tax-deferred annuity

If you participated in the New York City Teachers' Retirement System's tax-deferred annuity program under NYC Administrative Code § 13-582 - typically through a salary reduction agreement authorized by Education Law § 3109-A - distributions from that 403(b) plan, including required minimum distributions, are exempt from New York State and New York City personal income tax under NYC Administrative Code § 13-561.

Accountants and tax professionals

When a client's 403(b) benefit flows through the NYC Teachers' Retirement System's tax-deferred annuity program, the controlling exemption is the City Administrative Code's blanket retirement-benefit exemption (§ 13-561), not the state Tax Law § 612(c)(3)(i) pension subtraction. This opinion did not need to decide whether § 612(c)(3)(i) would independently apply, so professionals relying on a similarly structured plan should look first to § 13-561.

Common questions

Q: Are Robert Weitzman's required minimum distributions from his 403(b) plan taxable by New York State?
A: No. The Department concluded they are exempt from New York State personal income tax under NYC Administrative Code § 13-561.

Q: What is the legal basis for the exemption?
A: The distributions come from a tax-deferred annuity program maintained under NYC Administrative Code § 13-582, which was established pursuant to Education Law § 3109-A. Section 13-582.a and § 13-582.f incorporate § 13-561, which exempts retirement system pensions, annuities, and retirement allowances from state and municipal tax.

Q: Did the Department also rely on Tax Law § 612(c)(3)(i)?
A: No. Because the NYC Administrative Code exemption already covered the distributions, the Department expressly stated it was unnecessary to consider whether § 612(c)(3)(i) of the Tax Law also applied.

Q: Does this exemption depend on the distribution being a required minimum distribution?
A: The ruling addresses the required minimum distribution Weitzman was actually receiving, but the exemption in § 13-561 is written broadly to cover pensions, annuities, retirement allowances, and other rights accrued under the retirement system - it is not limited to required minimum distributions specifically.

Q: Does this opinion apply to any 403(b) plan, or only NYC Teachers' Retirement System plans?
A: The exemption discussed is specific to distributions from the New York City Teachers' Retirement System's tax-deferred annuity program under NYC Administrative Code § 13-582 and § 13-561; the opinion does not address 403(b) plans maintained by other employers or retirement systems.

Citations and references

• Tax Law § 612(c)(3)(i) - subtraction for pensions to officers and employees of New York State, its subdivisions and agencies (not reached in this opinion because the City exemption applied)
• IRC § 403(b)(1) - tax-deferred annuity provisions for employees of public schools and certain tax-exempt employers
• Education Law § 3109-A - authorizes salary reduction agreements for NYC teachers to purchase tax-deferred annuities
• NYC Administrative Code § 13-582 (and §§ 13-582.a, 13-582.f) - establishes the NYC Teachers' Retirement System tax-deferred annuity program and incorporates § 13-561
• NYC Administrative Code § 13-561 - exempts pensions, annuities, retirement allowances, and other retirement system benefits from state and municipal tax

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a02_9i.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(9)I
Income Tax
December 16, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I020510B

On May 10, 2002, a Petition for Advisory Opinion was received from Robert Weitzman, 455
F.D.R. Drive, Apt. B901, New York, NY 10002.
The issue raised by Petitioner, Robert Weitzman, is whether distributions received from an
Internal Revenue Code section 403(b) tax-deferred annuity plan (IRC 403(b) plan) are exempt from
New York State personal income tax pursuant to section 612(c)(3)(i) of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a retired high school teacher from the Board of Education of the City of
New York. Petitioner is seventy-five years of age and receives the required minimum distribution
from his New York City Teacher’s Retirement IRC 403(b) plan.
Applicable Law
Section 403(b)(1) of the Internal Revenue Code contains employee annuity provisions for
a beneficiary under an annuity purchased by a public school, and provides, in part:
General rule. If ­
(A) an annuity contract is purchased ­
(i) for an employee by an employer described in section
501(c)(3) which is exempt from tax under section 501(a),
(ii) for an employee (other than an employee described in
clause (i)), who performs services for an educational organization
described in section 170(b)(1)(A)(ii), by an employer which is a
State, a political subdivision of a State, or an agency or
instrumentality of any one or more of the foregoing . . .
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(B) such annuity contract is not subject to subsection (a),

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(C) the employee’s rights under the contract are nonforfeitable, except for
failure to pay future premiums,

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and
(E) in the case of a contract purchased under a salary reduction agreement,
the contract meets the requirements of section 401(a)(30),
then amounts contributed by such employer for such annuity contract on or after such
rights become nonforfeitable shall be excluded from the gross income of the
employee for the taxable year to the extent that the aggregate of such amounts does
not exceed the applicable limit under section 415. The amount actually distributed
to any distributee under such contract shall be taxable to the distributee (in the year
in which so distributed) under section 72 (relating to annuities). . . .
Section 3109-A of the Education Law authorizes the reduction of salaries of teachers in
New York City school districts for the purpose of purchasing tax deferred annuities. The tax
deferred annuity program of the New York City Teachers’ Retirement System, which implements
this provision, is set forth in section 13-582 of the Administrative Code of the City of New York
(New York Administrative Code).
Section 13-582.a of the New York Administrative Code provides that “Any member for
whom a salary reduction agreement is executed pursuant to . . . section three thousand one hundred
nine-A of the education law shall thereby become a participant in the tax-deferred annuity
program. . . .”
Section 13-582.f of the New York Administrative Code adopts the provisions of section
13-561 of the New York Administrative Code by reference, and provides that as such section applies
“to the contributions made by a contributor and the benefits provided thereby, shall apply separately
and independently to the tax-deferred annuity net contributions and the benefits provided thereby
. . . .”
Section 13-561 of the New York Administrative Code, as amended by Chapter 248 of the
Laws of 1994, (formerly section B20-48.0 as enacted by Chapter 929 of the Laws of 1937) provides
a general state and local income tax exemption for payments made under the New York City
Teacher’s Retirement System, and provides, in part:
Exemption from tax, execution, etc. The right of a person to a pension,
a pension-providing-for-increased-take-home-pay, an annuity, or a retirement

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allowance, to the return of contributions, the pension, pension-providing-for­
increased-take-home-pay, annuity, or retirement allowance itself, any optional
benefit, any other right accrued or accruing to any person under the provisions of this
chapter, and the moneys in the various funds provided for by this chapter, are hereby
exempt from any state or municipal tax, and exempt from levy and sale, garnishment,
attachment or any other process whatsoever, and shall be unassignable except as in
this chapter specifically otherwise provided. . . .
Section 612(a) of the Tax Law provides:
General. The New York adjusted gross income of a resident individual
means his federal adjusted gross income as defined in the laws of the United States
for the taxable year, with the modifications specified in this section.
Section 612(c) of the Tax Law provides, in part:
Modifications reducing federal adjusted gross income. There shall be
subtracted from federal adjusted gross income:
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(3)(i) Pensions to officers and employees of this state, its subdivisions and
agencies, to the extent includible in gross income for federal income tax purposes;
Opinion
Pursuant to section 3109-A of the Education Law, a person employed by the Board of
Education of the City of New York may agree to reduce his or her annual salary and become a
participant in a tax deferred annuity program. The New York City Teachers’ Retirement System
tax deferred annuity program is authorized by section 403(b) of the Internal Revenue Code, and is
maintained pursuant to section 13-582 of the New York Administrative Code. Distributions from
the IRC 403(b) plan maintained pursuant to section 13-582 of the New York Administrative Code
are exempt from New York State and New York City personal income taxes pursuant to section
13-561 of the New York Administrative Code.
Accordingly, distributions received by Petitioner from his New York City Teachers’
Retirement IRC 403(b) plan are exempt from New York State personal income tax pursuant to
section 13-561 of the New York Administrative Code. In view of this conclusion, it is not

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necessary to consider whether the provisions of section 612(c)(3)(i) of the Tax Law apply to the
distributions received by Petitioner from his New York City Teachers’ Retirement IRC 403(b) plan.

DATED: December 16, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.