Advanced Underwriting Consultants

Question of the Day – June 28

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question:  My client has been told she can purchase service credits toward her Illinois state employees’ pension plan.  Can she use money in her IRA to do that on a pre-tax basis?

Answer:  Yes, if she follows the procedures outlined by the state pension plan administrator.

Here’s a piece describing the Illinois benefit program.  See page 12, which indicates that IRA money can be used to transfer into TRS to pay for the optional service credits.

http://trs.illinois.gov/subsections/members/pubs/memberguide/tieri_print.pdf

The client should contact the pension plan administrator and ask for specific instructions on how to do it.  Her best course of action would be a direct transfer of money from the IRA to the TRS, making it simple for the client to explain to the IRS if there’s ever a question regarding what the IRA money was used for.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day. 

Question of the Day – June 19

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question:  My client is implementing a Section 529 plan for her daughter.  What are the Illinois state income tax consequences of doing that?

Answer:  Each state takes its own position with regard to the tax treatment of Section 529 plans.  State rules may differ with regard to tax deductions and tax credits for contributions.  Likewise, rules may differ with regard to the tax treatment of distributions.

Illinois permits Illinois taxpayers to deduct contributions to Illinois’s own Section 529 program—the Bright Start program.  It does not allow Illinois taxpayers a tax deduction for contributions to other states’ Section 529 plans.

Qualified distributions from any state’s Section 529 plan are exempt from Illinois state income tax.  See this link:

http://tax.illinois.gov/LegalInformation/letter/rulings/it/2002/ig020004.pdf.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.