If a New York State employee directly transfers funds from a New York State-sponsored IRC 403(b) plan to a different 403(b) plan, are the retirement benefits later received from that second plan still exempt from New York personal income tax?

Plain-English summary

Eric D. Krouse asked the Department about a client employed by the State University of New York who participates in a New York State-sponsored IRC 403(b) tax-deferred annuity plan, funded by New York State contributions, salary deferrals, or both. Upon retirement, the client wanted to direct the custodian to transfer the funds directly into a different IRC 403(b) plan - one not sponsored by New York State - after which no further contributions would be made to the new plan. The question was whether retirement benefits eventually paid out of that second, non-State-sponsored plan would still qualify for New York's exemption for public employee pensions.

The Department first laid out the background rule: Tax Law § 612(c)(3)(i) and 20 NYCRR 112.3(c)(1)(i) exempt from New York personal income tax pensions and retirement benefits that relate to public service and that were actually contributed to (not merely deemed contributed to) by New York State, its subdivisions, agencies, or the federal government. The key federal wrinkle is that a direct transfer from one 403(b) plan to another is treated differently than a rollover into an IRA. Under IRC § 403(b)(8)(A) and IRS guidance, moving funds from a 403(b) plan into an IRA is treated as a distribution followed by a rollover. But a direct transfer from one 403(b) plan to another 403(b) plan is not treated as an actual distribution under IRC § 403(b)(1), so long as the transferred funds remain subject to the same or more stringent distribution restrictions imposed by IRC §§ 403(b)(11) and 403(b)(7)(A)(ii) - and so long as the individual retains an annuity interest throughout (satisfying the nontransferability rule of IRC § 401(g)).

The Department distinguished this fact pattern from its own prior opinion in Richard Epstein, TSB-A-03(5)I, which involved a 403(b)-to-IRA rollover (a true distribution) rather than a 403(b)-to-403(b) direct transfer. Because no actual distribution occurs on a direct 403(b)-to-403(b) transfer, the character of the money carries over: if the funds moved out of the first plan were actually contributed by New York State, they remain exempt New York State pension money in the second plan - and any later interest, dividends, or gains earned on that money in the second plan are exempt too, no matter the employee's age when benefits are eventually paid. Conversely, if the first plan was never actually funded by New York State contributions, the exemption never attached to begin with, and the transfer to a second plan does not create it.

For amounts that don't qualify for the full public-employee pension exemption, the Department noted a fallback: once the individual turns 59½, those benefits can be combined with any other qualifying pension and annuity income and subtracted from federal adjusted gross income under Tax Law § 612(c)(3-a) and 20 NYCRR 112.3(c)(2)(i), up to a combined cap of $20,000.

What this means for you

Public employees moving 403(b) balances between custodians

If your New York State-sponsored 403(b) plan was actually funded (in whole or part) by New York State contributions, directing the custodian to make a direct transfer to a different 403(b) plan - rather than cashing out or rolling into an IRA - preserves the New York income tax exemption on that money and its future earnings. The exemption follows the actually-contributed dollars into the new plan regardless of your age when you eventually take a distribution.

Accountants and tax professionals

When a client is considering moving a 403(b) balance, the destination matters for New York tax purposes: a 403(b)-to-IRA rollover is treated as a distribution (see Epstein, TSB-A-03(5)I), while a 403(b)-to-403(b) direct transfer generally is not, provided the receiving plan preserves the same or stricter distribution restrictions under IRC §§ 403(b)(7)(A)(ii) and 403(b)(11). Confirm whether the original plan was "actually contributed to" by New York State (versus merely deemed contributed to) before advising on the exemption, and remember the $20,000 pension and annuity exclusion under § 612(c)(3-a) as a fallback for amounts that don't otherwise qualify once the individual reaches 59½.

Common questions

Q: Does moving 403(b) funds to a new custodian trigger New York tax?
A: Not by itself. A direct transfer between two IRC 403(b) plans is not treated as an actual distribution under IRC § 403(b)(1) as long as the transferred funds remain subject to the same or stricter distribution restrictions in the new plan, so it does not, on its own, cause a New York taxable event.

Q: Does the new 403(b) plan have to be sponsored by New York State for the exemption to keep applying?
A: No. What matters is whether amounts were actually contributed by New York State to the original plan. If so, benefits later paid from the second plan - even though it isn't State-sponsored - remain exempt under Tax Law § 612(c)(3)(i) and 20 NYCRR 112.3(c)(1)(i).

Q: What if the original 403(b) plan wasn't actually funded by New York State contributions?
A: Then the public employee pension exemption doesn't apply to benefits from either plan. However, once the individual reaches age 59½, that income may still be combined with other qualifying pension and annuity income under Tax Law § 612(c)(3-a), subject to the overall $20,000 exclusion cap.

Q: How is this different from rolling a 403(b) into an IRA?
A: A 403(b)-to-IRA rollover is treated as an actual distribution followed by a rollover contribution (per IRC § 403(b)(8)(A) and IRS guidance discussed in the Department's earlier Epstein opinion, TSB-A-03(5)I). A direct 403(b)-to-403(b) transfer is not treated as a distribution at all, which is why this opinion reached a different result than Epstein.

Citations and references

• Tax Law § 612(c)(3)(i) - exempts pensions actually contributed to by New York State, its subdivisions, agencies, or the federal government
• Tax Law § 612(c)(3-a) - $20,000 pension and annuity exclusion for individuals 59½ or older
• 20 NYCRR 112.3(c)(1)(i) - subtraction modification for public employee pensions actually contributed to by New York State
• 20 NYCRR 112.3(c)(2)(i) - conditions for the $20,000 pension and annuity income exclusion
• IRC § 403(b)(1) - general rule for employee annuities purchased by qualifying employers
• IRC § 403(b)(7)(A) - custodial account amounts treated as employer contributions; restrictions on payout
• IRC § 403(b)(8)(A) - treatment of eligible rollover distributions to eligible retirement plans
• IRC § 403(b)(11) - restriction on early distribution of salary-reduction contributions
• IRC § 401(g) - definition of annuity and nontransferability requirement
• Richard Epstein, TSB-A-03(5)I (Nov. 19, 2003) - distinguished; involved a 403(b)-to-IRA rollover, treated as an actual distribution
• Joseph W. Martiney, TSB-H-80-(523)I (Nov. 24, 1980) - IRA rollover of a New York pension is a nontaxable return of principal to the extent of the rolled-over pension funds

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a06_10i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(10)I
Income Tax
December 29, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I060920B

On September 20, 2006, a Petition for Advisory Opinion was received from Eric D.
Krouse, 5710 Commons Park Drive, East Syracuse, New York 13057.
The issue raised by Petitioner, Eric D. Krouse, is whether retirement benefits received
from an Internal Revenue Code (IRC) section 403(b) tax-deferred annuity plan (IRC 403(b)
plan) are exempt from New York personal income tax pursuant to section 612(c)(3)(i) of the Tax
Law and section 112.3(c)(1)(i) of the New York State personal income tax regulations
(Regulations) if an individual directs the custodian of the current New York State-sponsored IRC
403(b) plan to transfer funds from the plan to another IRC 403(b) plan.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner’s client is an individual employed by the state of New York (i.e., State
University of New York). New York State sponsors an IRC 403(b) plan for its employees. The
individual currently participates in an IRC 403(b) plan with a custodian sponsored by New York
State. The IRC 403(b) plan is funded by contributions by New York State or through salary
deferrals of the participants, or both.
Upon retirement, the individual may direct the custodian of the New York State­
sponsored IRC 403(b) plan to transfer funds from the plan to a custodian of another IRC 403(b)
plan. The second IRC 403(b) plan is not sponsored by New York State. After funds are
transferred, no further contributions will be made to the second plan.
Applicable law and regulations
Section 401(f) of the IRC provides, in part:
Certain custodial accounts and contracts. For purposes of this title, a custodial
account, an annuity contract, or a contract (other than a life, health or accident, property,
casualty, or liability insurance contract) issued by an insurance company qualified to do
business in a State shall be treated as a qualified trust under this section if –
(1) the custodial account or contract would, except for the fact that it is not a trust,
constitute a qualified trust under this section, and
(2) in the case of a custodial account the assets thereof are held by a bank (as
defined in section 408(n)) or another person who demonstrates, to the satisfaction of the

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Secretary, that the manner in which he will hold the assets will be consistent with the
requirements of this section.
For purposes of this title, in the case of a custodial account or contract treated as a
qualified trust under this section by reason of this subsection, the person holding the
assets of such account or holding such contract shall be treated as the trustee thereof.
Section 401(g) of the IRC provides:
Annuity defined. For purposes of this section and sections 402, 403, and 404, the
term “annuity” includes a face-amount certificate, as defined in section 2(a)(15) of the
Investment Company Act of 1940 (15 U.S.C., sec. 80a-2); but does not include any
contract or certificate issued after December 31, 1962, which is transferable, if any
person other than the trustee of a trust described in section 401(a) which is exempt from
tax under section 501(a) is the owner of such contract or certificate.
Section 403(b)(1) of the IRC contains employee annuity provisions for a beneficiary
under an annuity purchased by a public school, and provides, in part:
General rule. If –
(A) an annuity contract is purchased (i) for an employee by an employer described in section 501(c)(3) which is
exempt from tax under section 501(a),
(ii) for an employee (other than an employee described in clause (i)), who
performs services for an educational organization described in section 170(b)(1)(A)(ii),
by an employer which is a State, a political subdivision of a State, or an agency or
instrumentality of any one or more of the foregoing …
*

*

*

(B) such annuity contract is not subject to subsection (a),
(C) the employee’s rights under the contract are nonforfeitable, except for failure
to pay future premiums,
*
and

*

*

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(E) in the case of a contract purchased under a salary reduction agreement, the
contract meets the requirements of section 401(a)(30),
then contributions and other additions by such employer for such annuity contract shall
be excluded from the gross income of the employee for the taxable year to the extent that
the aggregate of such contributions and additions (when expressed as an annual addition
(within the meaning of section 415(c)(2))) does not exceed the applicable limit under
section 415. The amount actually distributed to any distributee under such contract shall
be taxable to the distributee (in the year in which so distributed) under section 72
(relating to annuities)....
Section 403(b)(7)(A) of the IRC provides:
Amounts paid treated as contributions. For purposes of this title, amounts paid by
an employer described in paragraph (1)(A) to a custodial account which satisfies the
requirements of section 401(f)(2) shall be treated as amounts contributed by him for an
annuity contract for his employee if –
(i) the amounts are to be invested in regulated investment company stock to be
held in that custodial account, and
(ii) under the custodial account no such amounts may be paid or made available to
any distributee before the employee dies, attains age 59 ½, has a severance from
employment, becomes disabled (within the meaning of section 72(m)(7)), or in the case
of contributions made pursuant to a salary reduction agreement (within the meaning of
section 3121(a)(5)(D)), encounters financial hardship.
Section 403(b)(8)(A) of the IRC provides:
General rule. If
(i) any portion of the balance to the credit of an employee in an annuity contract
described in paragraph (1) is paid to him in an eligible rollover distribution (within the
meaning of section 402(c)(4)),
(ii) the employee transfers any portion of the property he receives in such
distribution to an eligible retirement plan described in section 402(c)(8)(B), and
(iii) in the case of a distribution of property other than money, the property so
transferred consists of the property distributed,
then such distribution (to the extent so transferred) shall not be includible in gross income
for the taxable year in which paid.

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Section 403(b)(11) of the IRC provides:
Requirement that distributions not begin before age 59½, severance from
employment, death, or disability. This subsection shall not apply to any annuity contract
unless under such contract distributions attributable to contributions made pursuant to a
salary reduction agreement (within the meaning of section 402(g)(3)(C)) may be paid
only –
(A) when the employee attains age 59 ½, has a severance from employment, dies,
or becomes disabled (within the meaning of section 72(m)(7)), or
(B) in the case of hardship.
Such contract may not provide for the distribution of any income attributable to such
contributions in the case of hardship.
Section 501(c)(3) of the IRC provides:
Corporations, and any community chest, fund, or foundation, organized and
operated exclusively for religious, charitable, scientific, testing for public safety, literary,
or educational purposes, or to foster national or international amateur sports competition
(but only if no part of its activities involve the provision of athletic facilities or
equipment), or for the prevention of cruelty to children or animals, no part of the net
earnings of which inures to the benefit of any private shareholder or individual, no
substantial part of the activities of which is carrying on propaganda, or otherwise
attempting, to influence legislation (except as otherwise provided in subsection (h)), and
which does not participate in, or intervene in (including the publishing or distributing of
statements), any political campaign on behalf of (or in opposition to) any candidate for
public office.
Section 612(a) of the Tax Law provides:
General. The New York adjusted gross income of a resident individual means his
federal adjusted gross income as defined in the laws of the United States for the taxable
year, with the modifications specified in this section.
Section 612(c) of the Tax Law provides, in part:
Modifications reducing federal adjusted gross income. There shall be subtracted
from federal adjusted gross income:
*

*

*

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(3)(i) Pensions to officers and employees of this state, its subdivisions and
agencies, to the extent includible in gross income for federal income tax purposes;
*

*

*

(3-a) Pensions and annuities received by an individual who has attained the age of
fifty-nine and one-half, not otherwise excluded pursuant to paragraph three of this
subsection, to the extent includible in gross income for federal income tax purposes, but
not in excess of twenty thousand dollars, which are periodic payments attributable to
personal services performed by such individual prior to his retirement from employment,
which arise (i) from an employer-employee relationship or (ii) from contributions to a
retirement plan which are deductible for federal income tax purposes. However, the term
"pensions and annuities" shall also include distributions received by an individual who
has attained the age of fifty-nine and one-half from an individual retirement account or an
individual retirement annuity, as defined in section four hundred eight of the internal
revenue code, and distributions received by an individual who has attained the age of
fifty-nine and one-half from self-employed individual and owner-employee retirement
plans which qualify under section four hundred one of the internal revenue code, whether
or not the payments are periodic in nature. Nevertheless, the term "pensions and
annuities" shall not include any lump sum distribution, as defined in subparagraph (A) of
paragraph four of subsection (e) of section four hundred two of the internal revenue code
and taxed under section six hundred three of this article. Where a husband and wife file a
joint state personal income tax return, the modification provided for in this paragraph
shall be computed as if they were filing separate state personal income tax returns. Where
a payment would otherwise come within the meaning of the term "pensions and
annuities" as set forth in this paragraph, except that such individual is deceased, such
payment shall, nevertheless, be treated as a pension or annuity for purposes of this
paragraph if such payment is received by such individual's beneficiary.
Section 112.3(c)(1) of the Regulations provides:
Pensions and other retirement benefits paid to public officers and public
employees of New York State, its political subdivisions or agencies or the Federal
government (Tax Law, §612(c)(3)).
(i) Retirement benefits provided for in clauses (a) and (b) of this subparagraph
which are included in Federal adjusted gross income, relate to services performed as
public officers or public employees and all or a portion of which are actually contributed
to (rather than merely being deemed contributed to) by New York State, its political
subdivisions or agencies or the Federal government, shall be subtracted in computing
New York adjusted gross income:

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(a) pensions and other retirement benefits (including, but not limited to, annuities,
interest and lump sum payments) paid to a public officer or public employee or the
beneficiary of a deceased public officer or deceased public employee of New York State,
its political subdivisions or agencies;
(b) pensions and other retirement benefits (including but not limited to annuities,
interest and lump sum payments) paid to a public officer or public employee or the
beneficiary of a deceased public officer or deceased public employee of the United
States, its territories or possessions, or political subdivisions of such territories or
possessions, the District of Columbia, or any agency or instrumentality of any one of the
foregoing.
(ii) This paragraph shall also apply to distributions paid in a taxable year prior to
retirement to public officers and public employees which represent a return of
contributions to the applicable public retirement program.
(iii) The provisions of this paragraph can be illustrated by the following examples:
Example 1: A retired employee of New York State receives a pension which is
taxed under the Internal Revenue Code as annuity income. Since the pension of a retired
New York State employee is exempt from New York State personal income tax under
New York State law, the amount included in Federal adjusted gross income on account of
this pension is subtracted in determining such employee's New York adjusted gross
income.
Example 2: A New York State employee leaves state service prior to vesting in
the New York State Employee's Retirement System. Contributions made by or on behalf
of such employee, as well as all investment earnings accumulated thereon, are to be
subtracted in determining such employee's New York adjusted gross income.
Example 3: A retired Federal employee receives a pension which is taxed under
the Internal Revenue Code as annuity income. Since the pension of a retired Federal
employee is exempt from New York State personal income tax under New York State
law, the amount included in Federal adjusted gross income on account of this pension is
subtracted in determining such employee's New York adjusted gross income.
Example 4: A retired employee of the State University of New York who elected
to participate in the applicable Optional Retirement Program authorized under the
Education Law receives a pension, based upon such employee's public service, which is
taxed under the Internal Revenue Code as annuity income. Since such pension income is
exempt from New York State personal income tax under New York State law because
such pension was actually contributed to by New York State, the amount included in

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Federal adjusted gross income on account of this pension is subtracted in determining
such employee's New York adjusted gross income.
Example 5: A retired employee of a public benefit corporation receives a pension
from a fund which was not contributed to by New York State, any of its political
subdivisions or agencies or the Federal government and which is taxed under the Internal
Revenue Code as annuity income. Since such pension income is not exempt from New
York State personal income tax under New York State law because such pension was not
actually contributed to by New York State, any of its political subdivisions or agencies or
the Federal government, the amount included in Federal adjusted gross income on
account of this pension is not subtracted in determining such employee's New York
adjusted gross income and is therefore included in such employee's New York adjusted
gross income.
Section 112.3(c)(2)(i) of the Regulations provides, in part:
Pension and annuity income not subject to the modification referred to in
paragraph (1) of this subdivision and not in excess of $20,000, received by an individual
may be subtracted in determining New York adjusted gross income providing the
following conditions are met:
(a) the pension and annuity income must be included in Federal adjusted gross
income;
(b) the pension and annuity income must be received in periodic payments (except
where otherwise provided in this paragraph);
(c) the pension and annuity income must be attributable to personal services
performed by such individual, prior to such individual's retirement from employment,
which arises from either an employer-employee relationship or from contributions to a
retirement plan which are tax deductible under the Internal Revenue Code (e.g.,
individual retirement account [IRA] or self-employed retirement [Keogh]); and
(d) such individual receiving the pension and annuity income must be 59 ½ years
of age or over.
Opinion
Section 5 of Article 16 of the New York State Constitution provides that "all salaries,
wages and other compensation, except pensions, paid to officers and employees of the state and
its subdivisions and agencies shall be subject to taxation."

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Section 612(c)(3)(i) of the Tax Law exempts from New York State personal income tax
pensions paid to officers and employees of New York State, its subdivisions, and agencies. The
United States Supreme Court in Davis v Michigan Department of Treasury, 489 US 803 (1989),
extended the exemption to employees of the United States, its territories or possessions, or
political subdivisions of such territories or possessions, the District of Columbia, or any agency
or instrumentality of any one of the foregoing. Section 112.3(c)(1) of the Regulations relates to
the subtraction modification for pensions paid to public officers and public employees of
New York State, its political subdivisions, its agencies, or the federal government. On August 1,
1994, section 112.3(c)(1) of the Regulations was amended to clarify that pensions and other
retirement benefits paid would qualify for the modification if they relate to services performed as
a public officer or public employee of, and include amounts actually contributed by, the State, its
political subdivisions, its agencies, or the federal government.
Retirement benefits received that are not attributable to amounts actually contributed by
the State, its political subdivisions, its agencies, or the federal government do not constitute a
pension or retirement benefit exempt from New York personal income tax pursuant to section
612(c)(3)(i) of the Tax Law and section 112.3(c)(1)(i) of the Regulations.
In Joseph W. Martiney, Adv Op St Tax Comm, November 24, 1980, TSB-H-80-(523)I, it
was held that the distributions from an IRA established by means of a tax-free rollover of
amounts received in the form of a pension from New York State, or a subdivision or agency
thereof, represents a nontaxable return of principal to the extent that the distribution represents a
return of the pension funds "rolled over" into the IRA. To the extent that the distribution
represents interest or any other type of gain earned in the account, such portion would be subject
to tax.
In a related issue, in Richard Epstein, Adv Op Comm T&F, November 19, 2003,
TSB-A-03(5)I, the petitioner was a pension member of the Board of Education of the City of
New York. It was held that a portion of the distributions received by the petitioner from an IRA
established by means of a tax-free rollover or direct transfer of amounts from petitioner’s IRC
403(b) plan, represented an amount of the IRC 403(b) plan. The return of the IRC 403(b) plan
contribution was exempt for New York State personal income tax purposes. Since petitioner was
more than 59½ years old, the balance of the distribution from the IRA that represented other
contributions, interest, dividends, net gains, etc. was eligible for the New York State pension and
annuity exclusion of $20,000 under section 612(c)(3-a) of the Tax Law.
The present case is distinguishable from Epstein, supra. When there is a transfer from an
IRC 403(b) plan to an IRA, the transfer is considered a distribution and subsequent rollover (see
IRC section 403(b)(8)(A) and Internal Revenue Service Revenue Ruling 89-50). However, in
the present case, the individual is considering a direct transfer from one IRC 403(b) plan to
another IRC 403(b) plan. A direct transfer between IRC 403(b) plans does not constitute an
actual distribution under IRC section 403(b)(1) if the transferred funds continue to be subject to
the same or more stringent distribution restrictions imposed on such funds by IRC section

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403(b)(11) or IRC section 403(b)(7)(A)(ii). See Internal Revenue Service Revenue Ruling 90-24,
1990-1 CB 97.
IRC section 403(b)(7)(A) provides that amounts paid by a qualifying employer to a
custodial account that satisfies the requirements of IRC section 401(f)(2) are treated as amounts
contributed by the employer to an annuity contract for an employee provided the amounts are to
be invested in regulated investment company stock to be held in that custodial account. IRC
section 403(b)(7)(A)(ii) provides that amounts paid by an employer to a custodial account are
treated as amounts contributed by the employer to an annuity contract for an employee only if no
amounts may be paid or made available to any distributee before the employee dies, attains age
59½, separates from service, becomes disabled, or, in the case of contributions made pursuant to
a salary reduction agreement, encounters financial hardship. Similarly, IRC section 403(b)(11)
provides that a distribution from an IRC section 403(b) plan attributable to salary reduction
contributions may be paid only when the employee attains age 59½, separates from service, dies,
or becomes disabled. Distributions attributable to those contributions may also be paid in the
case of hardship, but the distributions may not include income attributable to those contributions.
IRC section 403(b)(11) is effective for years beginning after December 31, 1988, but only with
respect to distributions attributable to assets other than assets held as of the close of the last year
beginning before January 1, 1989. See Internal Revenue Service Revenue Ruling 90-24, supra.
It appears that in this case, because the individual will merely transfer an interest in one
IRC 403(b) plan to another IRC 403(b) plan, the transfer will not violate the early distribution
restrictions of IRC section 403(b)(11) or IRC section 403(b)(7)(A)(ii). Because the individual
will not receive an actual distribution within the meaning of IRC section 403(b)(1), the transfer is
not taxable for federal income tax purposes. Also, because the individual will retain an annuity
interest throughout the transaction, the direct transfer between IRC 403(b) plans is a mere change
in issuers that does not violate the nontransferability requirement of IRC section 401(g).
Accordingly, when all or a portion of the amounts were actually contributed (rather than
merely being deemed to be contributed) to the first IRC 403(b) plan by New York State,
regardless of the age of the individual at the time of distribution, the retirement benefits received
from the second IRC 403(b) plan established by direct transfer of funds from the first IRC 403(b)
plan relating to services performed as a public officer or public employee, the amount
transferred, and any subsequent interest, dividends, net gains, etc. earned in the second IRC
403(b) plan are exempt from New York personal income tax pursuant to section 612(c)(3)(i) of
the Tax Law and section 112.3(c)(1)(i) of the Regulations.
When no amounts were actually contributed (rather than merely being deemed to be
contributed) to the first IRC 403(b) plan by New York State, the retirement benefits received
from the second IRC 403(b) plan established by direct transfer of funds from the first IRC 403(b)
plan, the amount transferred, and any subsequent interest, dividends, net gains, etc. earned in the
second IRC 403(b) plan are not exempt from New York personal income tax pursuant to section
612(c)(3)(i) of the Tax Law and section 112.3(c)(1)(i) of the Regulations. However, pursuant to

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section 612(c)(3-a) of the Tax Law and section 112.3(c)(2)(i) of the Regulations, when an
individual reaches 59½ years of age, pensions and annuities received by an individual from the
second IRC 403(b) plan not otherwise excluded under section 612(c)(3)(i) of the Tax Law and
section 112.3(c)(1)(i) of the Regulations may be added to the individual’s other pension and
annuity income, if any, that meets the conditions of sections 612(c)(3-a) and 112.3(c)(2)(i) for
purposes of computing the $20,000 pension and annuity income modification. The total, but not
in excess of $20,000, may be subtracted from federal adjusted gross income when computing
New York adjusted gross income.

DATED: December 29, 2006

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.