MONTGOMERY — Retirees in Alabama would pay significantly less tax on their 401(k) incomes under a proposal by state Rep. Lynn Greer.
Currently, retirement incomes from defined contribution plans such as 401(k)s are subject to state income tax. But Alabamians who have defined benefit plans — including pensions from the state or federal government and the Tennessee Valley Authority — are not taxed on their retirement income.
“We’ve created two classes of citizens when it comes to retirees paying income taxes,” Greer said.
Greer’s House Bill 23 would make tax exempt 90 percent of annual income from 401(k)s and other defined contribution plans. The exemption would be phased in over five years, beginning with 20 percent in 2018.