Retirement Taxes in Gov. Beshear's New Tax Plan

By Michael Gossum | 

BOWLING GREEN, Ky. (WBKO) -- Governor Steve Beshear's new tax plan is getting attention all across the state.

One of the bigger money makers in Beshear's tax reform plan is phasing out a retirement exclusion.

"My plan also brings Kentucky closer to most neighboring states in how we tax retirement income for those with high earnings while still giving those tax payers more favorable treatment than those other states," said Gov. Steve Beshear when he unveiled his plan last week.

Beshear's plan would phase out about a $41,000 tax credit beginning at $80,000 all the way up to $100,000.

"Most surrounding states around Kentucky don't even allow for an exclusion. So, the fact that we still have one and it's still $41,000 for most tax payers is actually still a pretty favorable state income tax for retirees," said Certified Financial Planner Jeanne Fisher.

"This proposal will affect only about 90,000 of the 1.8 million tax filers in Kentucky," said Beshear.

There are those who have concerns about this though.

Rep. Jody Richards D-Bowling Green warned that reducing a pension income tax break for wealthy retirees would eat into pensions that dwindle as people live longer.

The governor's proposal doesn't affect those on a fixed income below $80,000.

Certified Financial Planner Jeanne Fisher said one specific type of saving would be even more beneficial now.

"There is the Roth option we talk a lot about in financial planning, In some ways this makes this even more favorable for the younger saver, the younger investor because here's an additional tax that won't affect those that are saving in the Roth bucket as opposed to just the traditional IRA or the 401K," said Fisher.

Under Beshear's plan Social Security benefits would not be taxable.

Many in Frankfort said this a starting point and is subject to change.

Lawmakers and the governor also recognize getting tax reform passed in a big election year will be difficult.

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