Your pension may become an important source of income during retirement. Your pension is usually retirement income funded entirely by your employer, although some pension schemes allow you to fund your pension along with your employer. Pensions in Florida are not treated the same as they are in other states.
A pension in Florida includes any money you receive as part of guaranteed monthly payments from your employer. Your employer funds a pension plan. In some cases, you may fund the pension along with your employer. This money builds up over time, tax-deferred, and is later paid out to you. Some plans, like 457 deferred compensation plans, may make payments to you before age 59 1/2, while other pensions may not make payments to you until you reach age 59 1/2 or older.
Florida does not have an income tax. This extends to investment income and unearned income from pension plans. There are no forms to file, and no deductions you must take, since you never file a state income tax return in Florida. When you receive your pension payment, you only need to report this amount on your federal income tax return.
Because there are no income taxes in Florida, you keep more of your retirement income. The money you would have paid in taxes to the State of Florida can be set aside to build small savings during your retirement, or spend this money however you wish. Either way, you get more income than you would in many other states.
Pensions aren't the only income that you receive tax-free in Florida. All investment income is untaxed. All of your other retirement income is untaxed in this state. You receive all of the money you receive from a 401(k) plan, IRA or any other source without paying state income tax. In addition to this, any pension or retirement income you receive from another state is tax-free in Florida, even if the state you receive it from has an income tax. However, regardless of your source of income, you must still pay federal income tax on your pension and retirement income unless you are receiving income from sources which are exempt from federal income taxes, like Roth IRA distributions.
I am a Registered Financial Consultant with 6 years experience in the financial services industry. I am trained in the financial planning process, with an emphasis in life insurance and annuity contracts. I have written for Demand Studios since 2009.