Defined contribution plans such as the 401(k) are taxed while defined benefit plans such as pensions are not taxed in Alabama. A new proposal in Alabama will exempt 90% of 401(k) earnings from state income tax if the bill passes.
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The income taxes from defined contributions are used to fund the education budget in Alabama. Education will lose out on approximately $109 Million in tax dollars when fully implemented in 2022.
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The bill seeks to make it fair for both forms of retirement income but is this a good idea? Mississippi and Tennessee have already implemented something similar.
Read more here:
http://www.timesdaily.com/news/local/bill-would-get-rid-of-state-income-tax-on-most/article_5c866f5c-f54e-52e1-802a-11e1867ea8d5.html
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