Question

As a federal retiree should my wifes' pension be exempt from NC state taxes due to the Bailey decision? She was employeed before 1989

Forum|Forum|2 years ago
August 20, 2023
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the pension is qualified for Bailey in NC as long as her pension was VESTED by August 12, 1989. That means her work start date had to be prior to August 12, 1984.

the issue is NOT employed prior to August, 12, 1989, it is VESTED prior to August, 12, 1989

https://www.ncdor.gov/taxes-forms/individual-income-tax/bailey-decision-concerning-federal-state-and-local-retirement-benefits

T

thomasreindlAuthor

Yes she started March of 1984. Does that mean she is vested as far as the pension is concerned.

Would other money contributed to TSP account by her placed into an IRA also be subject to the Bailey decision ( there was no match by the Federal Government ) but the plan was converted by the Federal Government from CSRS to CSRS offset in June of 2010 because of a claim that she was placed in the wrong plan when hired. The administrators created the CSRS offset for people who would not voluntarily switch to the FERS plan ( the "correct" one) which would have basically started my wife at day one.

SteamTrain

@thomasreindl

The Pension should be OK.

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The roll into the traditional IRA would not, no matter whether the TSP was Bailey eligible or not.

"Conversely, qualifying tax-exempt Bailey benefits rolled over into another retirement plan lose their character and would not be exempt upon distributions from the other plan unless that plan is a qualifying Bailey retirement account in which the employee was vested as of August 12, 1989. "

Ref: Bailey Decision Concerning Federal, State and Local Retirement Benefits | NCDOR

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As an aside: TSP eligibility itself was defined with slightly different rules in Directives PD-99-1 and PD-99-2....and requiring the first contribution before 12 Aug of 1989 in any case. (with a bunch of 2yr/3yr vesting handwaving about whether any employer...(federal) match was allowed to be Bailey exempt too. Defined in PD-99-2... But this wouldn't have been a question in your case, since you had no employer match....and had exited that TSP long ago).

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Directive PD-99-1 | NCDOR

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Directive PD-99-2 | NCDOR

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*