New York Advisory Opinion TSB-A-87 (11)I: Does the $20,000 pension and annuity exclusion under section 612(c)(3-a) of the Tax Law apply to payments from TIAA-CREF retirement annuity contracts that the retiree funded entirely with his own money?

Plain-English summary

Robert Stolberg, a former employee of the American Museum of Natural History, purchased a set of T.I.A.A.-C.R.E.F. retirement annuity contracts while employed there. His employer's only role was certifying him as an educational-institution employee (a prerequisite to buying T.I.A.A.-C.R.E.F. contracts) - it was not otherwise involved in the purchase, and Stolberg paid every premium himself, billed directly to him. Now retired and over 59½, he asked whether his monthly annuity payments qualified for the Tax Law § 612(c)(3-a) pension and annuity exclusion, which lets someone 59½ or older exclude up to $20,000 from New York adjusted gross income.

The Department explained that § 612(c)(3-a)'s exclusion has two independent requirements beyond the age threshold: the payments must be (1) periodic payments attributable to personal services the individual performed before retiring, and (2) arise from either an employer-employee relationship or contributions to a retirement plan that were deductible for federal income tax purposes (the opinion also notes IRA and Keogh plan distributions independently qualify). Stolberg's payments failed both prongs. Although he was over 59½ and receiving periodic annuity payments, those payments were "entirely attributable to the premium payments made by Petitioner from his own funds" - not to services he performed for his employer - and they were not IRA or Keogh distributions either. Because the employer's role was limited to a certification step and never touched the actual funding of the contracts, the Department held the exclusion did not apply.

What this means for you

Retirees with self-funded annuity contracts obtained through an employer-eligibility requirement

Just because your employer had to certify or facilitate your eligibility to purchase an annuity doesn't make the resulting payments "employer-related" for tax purposes. If you funded every premium yourself with personal money, the Department's position is that the payments are attributable to your own contributions, not to services performed for the employer - so the $20,000 pension/annuity exclusion is unlikely to apply, regardless of your age.

Educators and other institutional employees with TIAA-CREF or similar self-directed annuity contracts

This opinion is directly relevant if your employer's involvement in your retirement annuity was limited to certifying your eligibility (a common arrangement for TIAA-CREF-eligible educational and nonprofit employees) rather than making or matching contributions. Distinguish this from a true employer-sponsored plan where the employer contributes or the plan is a qualified, federally-deductible retirement plan - those arrangements can satisfy the exclusion's second prong even without a formal employer-employee funding relationship.

Accountants advising clients claiming the section 612(c)(3-a) pension exclusion

Check both prongs of the statute before claiming this exclusion for an annuity: was the payment attributable to personal services performed before retirement, and does it arise from either an employer-employee relationship or a plan whose contributions were federally deductible (or an IRA/Keogh)? A self-funded annuity - even one an employer helped make the taxpayer eligible for - can fail both tests, as it did here.

Common questions

Q: I'm over 59½ and receiving annuity payments - doesn't that automatically qualify for the $20,000 pension exclusion?
A: No. Age alone isn't enough. Tax Law § 612(c)(3-a) also requires the payments to be attributable to personal services performed before retirement AND to arise from an employer-employee relationship or a federally-deductible retirement plan (or be IRA/Keogh distributions). This opinion denied the exclusion because neither of those additional requirements was met.

Q: My employer required certification before I could buy my TIAA-CREF annuity - doesn't that make it "employer-related"?
A: Not under this opinion. The Department found that certifying eligibility, without the employer otherwise being involved in the purchase or funding, is not enough to make the resulting annuity payments attributable to an employer-employee relationship - especially where the taxpayer paid every premium from his own funds.

Q: Would the answer be different if my employer had contributed to the annuity or it were a qualified deductible retirement plan?
A: Likely yes. The opinion specifically distinguishes payments arising from an employer-employee relationship or contributions to a federally-deductible retirement plan (and separately, IRA/Keogh distributions) as the categories that CAN qualify - it was the complete absence of employer funding or plan-deductibility here that defeated the exclusion.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a87_11i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (11) I
Income Tax
December 22, 1987

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I870923B

On September 23, 1987, a Petition for Advisory Opinion was received from Robert Stolberg,
619 West 140th Street, New York, New York 10031.
The issue raised is the applicability of the $20,000 pension and annuity exclusion provided
by section 612(c)(3-a) of the Tax Law to payments received from a Teachers Insurance Annuity
Association (T.I.A.A.) retirement annuity contract and from a College Retirement Equities Fund
(C.R.E.F.) retirement annuity contract.
Petitioner is a former employee of the American Museum of Natural History. While
employed there, Petitioner purchased a set of T.I.A.A.-C.R.E.F. annuity contracts. Petitioner's
employer was required to certify Petitioner as an educational institution employee. However, the
employer was not otherwise involved in the purchase of the annuity contracts. Petitioner paid all
premiums on the contracts with his own funds. All such premiums were billed directly to Petitioner.
Petitioner is now retired and over 59½ years of age and is receiving monthly payments from his
T.I.A.A.-C.R.E.F. annuities.
Section 612(c)(3-a) of the Tax Law provides an exclusion from the New York adjusted gross
income of an individual who is at least 59½ years of age, such exclusion not to exceed $20,000, for
pensions and annuities which: (1) are periodic payments attributable to personal services performed
by such individual prior to his retirement from employment; and (2) arise from (a) an employer­
employee relationship, or (b) contributions to a retirement plan which are deductible for federal
income tax purposes.
Additionally, distributions from IRA and Keogh plans also qualify for exclusion.
While Petitioner has attained the age of 59½ years and is receiving periodic payments from
an annuity, such payments are not attributable to personal services performed by Petitioner. Rather
such payments are entirely attributable to the premium payments made by Petitioner from his own
funds. Additionally, such payments are not distributions from IRA or Keogh plans.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-87 (11) I
Income Tax
December 22, 1987

Accordingly, the payments received by Petitioner pursuant to the T.I.A.A.-C.R.E.F. annuity
contracts do not qualify for the exemption provided by section 612(c)(3-a) of the Tax Law.

DATED: December 22, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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