An Act Phasing Out The Personal Income Tax On Certain Individual Retirement Account Income.
The proposed legislation is expected to significantly impact the financial planning landscape for retirees in the state. By eliminating the personal income tax on designated retirement income, it may encourage more individuals to invest in these retirement options, potentially leading to increased savings among the elderly population. As such, the bill could contribute to a higher standard of living post-retirement, as individuals keep a larger portion of their retirement savings.
House Bill 05284 aims to phase out the personal income tax on certain types of individual retirement account (IRA) income. Specifically, it targets income derived from traditional IRAs, simplified employee pensions, and savings incentive match plan (SIMPLE) IRAs. This phase-out mirrors the existing phase-out schedule for personal income tax applied to pension and annuity incomes and is proposed to begin in the tax year starting January 1, 2022. This initiative suggests a shift in the approach to taxing retirement income, with a focus on gradually relieving tax burdens associated with retiree incomes.
While the bill is likely to gain support among constituents advocating for lower taxes on retirement income, there may be notable contentions from fiscal conservatives and lawmakers concerned about the potential decrease in state revenue. Critics may argue that phasing out income taxes on retirement benefits could strain state finances, particularly if the projected benefits do not offset the loss in tax revenue. Additionally, there may be discussions surrounding equity, with opposing views concerning whether tax breaks on retirement income favor wealthier retirees disproportionately.