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006.05.307-26-51-307. RETIREMENT PLANS AND DISABILITY BENEFITS

AR ADC 006.05.307-26-51-307Arkansas Administrative Code

West's Arkansas Administrative Code
Title 006. Department of Finance and Administration
Division 05. Division of Revenues
Rule 307. Comprehensive Individual Income Tax Regulations (Refs & Annos)
Ark. Admin. Code 006.05.307-26-51-307
006.05.307-26-51-307. RETIREMENT PLANS AND DISABILITY BENEFITS
1.26-51-307 Retirement or Disability Benefits
The first $6,000.00 of retirement or disability benefits received by a resident of Arkansas from an in-state or out-of-state retirement plan or program will be exempt from Arkansas income tax if:
a) the retirement plan or program is directly related to either public or private employment;
b) the Arkansas resident is the employee or former employee owner of the plan or the employee or former employee's spouse.
Plans or programs that could fall within the scope of this exemption are: pension plans; profit sharing plans; stock bonus plans; employee stock ownership plans (ESOPs); annuity plans; thrift and savings plans; cash or deferred arrangements (CODAs, also known as 401(k) plans); and simplified employee pension (SEP) plans. An individual retirement account (IRA) will fall outside the scope of this exemption unless it is established by an employer as a SEP.
2.26-51-307 Premature Distribution
A premature distribution taken by an Arkansas resident from a retirement plan or program that meets all of the criteria set forth above would qualify for the exemption.
3.26-51-307 Divorce
A taxpayer's interest in an ex-spouse's employment-related retirement plan or program acquired through a divorce is eligible for this exemption only if the interest was awarded pursuant to a qualified domestic relations order (QDRO). IRC Sec. 402(e)(1)(A) requires that an alternate payee (i.e. taxpayer), who is a former spouse of a retirement plan participant, be treated just like the participant with respect to any payments made to the alternate payee under a QDRO. Note that Arkansas has adopted Sections 72, 219, 401-404, 406-416 inclusive, and 457 of the Internal Revenue Code of 1986.
Example:
1. Mary was divorced from James by a Decree dated May 4, 1993.
2. As a part of the property settlement contained in the Decree, Mary was awarded an interest in James' 401(k) retirement plan pursuant to a qualified domestic relations order (IRC Sec. 414(p)).
3. Mary received $7,000.00 from James' 401(k) retirement plan in 1994.
4. Although Mary would report $7,000.00 in the gross income section of her Arkansas individual income tax return for 1994, she would be entitled to the $6,000.00 exemption and would pay income tax only on the $1,000.00 balance of the distribution.
4.26-51-307 Military Related Benefits
Only the first $6,000.00 of military retirement pay based on length of service is exempt from Arkansas income tax. However, pursuant to IRC Sec. 104(a)(4), the full amount of a military disability pension (with no $6,000.00 cap) is exempt from Arkansas income tax so long as the pension is for personal injuries or sickness resulting from active service in the armed forces. Likewise, military retirement pay, to the extent that it is based upon a military related disability, would be exempt above and beyond the first $6,000.00 received.
Current with amendments received through May 15, 2024. Some sections may be more current, see credit for details.
Ark. Admin. Code 006.05.307-26-51-307, AR ADC 006.05.307-26-51-307
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