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Council 400 Blog Apr 01, 2024
Navigating Retirement: Understanding Connecticut's Tax Exemptions for Retiree
by Kevin Sullivan

As we transition into retirement, understanding the financial landscape is crucial for maximizing our hard-earned benefits and savings. Today, I'd like to share some insights into Connecticut's tax exemptions that apply to various retirement incomes. While I'm here to guide you through these topics, it's important to note that I am not a tax expert. Complex tax questions should be directed towards a professional tax advisor, and this also applies to Bernadette Conway, who shares my limitations in providing tax advice.

Connecticut law offers several income tax exemptions to retirees, aiming to provide financial relief during retirement. These exemptions encompass Social Security benefits, railroad retirement benefits, military retirement pay, pension and annuity income, Teacher Retirement System (TRS) pension income, and Individual Retirement Account (IRA) distributions. 

Eligibility and the extent of these exemptions are generally based on one's total federal adjusted gross income (AGI). For instance, the Social Security Benefits Exemption is available to all, but only partially for those whose AGIs surpass $150,000 for joint filers or $100,000 for others. Railroad and military retirement benefits enjoy a full exemption regardless of AGI. The TRS pension income saw an enhancement in 2021, allowing for a 50% deduction, up from the 25% available between 2016 and 2020. The exemption for pension and annuity income, while fully applicable to taxpayers below certain AGI thresholds, will begin to phase out for higher-income retirees starting in the 2024 tax year. Similarly, the IRA income exemption, set to be fully phased in by 2026, will also undergo a gradual phase-out for those in higher income brackets from the 2024 tax year onwards.

Making the most of the tax exemptions provided by Connecticut law requires a proactive approach to retirement planning. It begins with a thorough review of your federal adjusted gross income (AGI), which is crucial for determining your eligibility for these exemptions. As tax laws are set to change starting in 2024, planning for the phase-out of certain exemptions is essential for avoiding unexpected impacts on your financial planning. The timing of your retirement is also pivotal, as it can significantly influence your qualification for these tax breaks, especially if your income is close to the specified thresholds. 

Given the intricacies of tax regulations, consulting with a tax advisor for personalized guidance can prove invaluable. Additionally, keeping abreast of evolving tax laws is critical for ensuring your retirement planning remains effective and adaptive to legislative changes.

As we navigate these financial waters, let's remember the importance of informed decision-making and seeking expert advice when necessary. Together, we can ensure a secure and prosperous retirement.

Please note: This article is for informational purposes only and does not constitute professional tax advice.

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