Retirement income no longer taxed in Iowa

Retirees should be aware that a new tax law in Iowa means that retirement income is no longer taxed.

Iowa Gov. Kim Reynolds signed House File 2317 into law on March 1, 2022, and a segment of that legislation excludes retirement income from taxes beginning Jan. 1, 2023.

Retirement income that is now shielded from taxation includes individual retirement plans (IRA), employee pensions such as IPERS, Roth conversion income, 401(k)s, and ESOP distributions, among others.

To qualify for this retirement income exclusion, Iowa residents must be at least 55 years old on Dec. 31 of the tax year, disabled, or be a surviving spouse or survivor with insurable interest of someone who would have qualified.

Taylor Collins, who was elected to the Iowa House in November to represent District 95, will assume the role of vice chair of the House Appropriations Committee. Though he wasn’t in the Legislature when House File 2317 was passed, he strongly supported the measure.

Collins said Iowa is losing retirees to states such as Texas and Florida because those states do not have an income tax.

“Many retirees are changing their residency to Florida for tax reasons,” he said. “With this change [to tax policy], we can keep those retirees here. We want to make sure Iowa is a place where people can raise a family, have a good job and retire after you’re done working.”

Collins said that he does not anticipate having to cut state services in response to the tax cuts implemented last year. He said the state has actually seen growth in revenue outpace the reduction from lower taxes.

Rep. Jeff Shipley, representing District 87 in the Iowa House, said the goal of HF 2317 was to provide tax relief to those who needed it most.

“Retired people who are on a fixed or limited income are a demographic you can zero in on and provide meaningful relief to,” Shipley said. “Elderly folks can benefit from more disposable income.”

Shipley echoed Collins’ comments about eliminating retirement taxes as a way to boost Iowa’s competitive advantage against other states.

“States with a lot of economic growth, like Texas, Florida and South Dakota, are states without an income tax,” he said. “When we look at Iowa, growing our population is at the root of a lot of issues, such as enrollment in rural schools and funding hospitals.”

Collins and Shipley said they anticipate more changes are coming to Iowa’s tax code. Collins said that one of the most frequently raised issues during the campaign was property taxes. Shipley said people have reached out to say they feel squeezed by rising property taxes from their increasing property valuations.

Call Andy Hallman at 641-575-0135 or email him at andy.hallman@southeastiowaunion.com