DES MOINES, Iowa — Starting in 2023, Iowans 55 years or older will be exempt from paying state taxes on retirement income.
"At the end of the day, this will have a big impact on the pocketbooks of older Iowans," said Brad Anderson, State Director for AARP Iowa. "Especially after a year of record inflation where it caused Iowans across the boards to struggle to pay for things like gas and groceries and medicines. So, anytime we can see more older Iowans keeping more of their retirement income. That's a good thing."
The change comes after Governor Kim Reynolds signed a sweeping tax reform bill in March of 2022.
"Previously there was a $6,000 exemption for single and then a $12,000 exemption for married filing jointly," said Jed Alexander, a CPA and owner of The Planners Tax and Accounting. "And they've now just went to a full non-taxability of all retirement distributions."
The law also contains new savings for some people who may be looking to reposition their assets, Alexander said.
"If you're over 55, and you do a Roth conversion, that also qualifies for the exemption," Anderson said. "So you no longer have to pay tax on that either."
In some cases, a person under 55 could see the tax breaks if they've taken over a retirement plan from someone else. A common example of this could be if someone passes away and the plan passes to someone else.
"If you are the beneficiary of someone who qualified for that exemption, you also qualify," Alexander said.
The Iowa Department of Revenue recently put out a guide to answer questions wondering if they qualify. You can find that guidance here.