MONTGOMERY, Ala. – The Alabama State Senate today approved SB18 – legislation sponsored by Senator Arthur Orr (R-Decatur) that would allow up to $6,000 of taxable retirement income to be exempt from state income tax for individuals who are 65 years of age or older.
Under current Alabama law, certain distributions from 401K retirement accounts and Individual Retirement Accounts (IRA) are taxable as income. This bill would provide for a maximum exemption amount of $6,000 beginning in Tax Year 2023 and would apply to any retirement income that is currently taxable.
“With inflation being as high as it is today, most retirees on fixed pension incomes are seeing a substantial decrease in their purchasing power each month as inflation continues to deplete their earnings,” said Orr. “This bill would enable the government to send money back to hardworking Alabama taxpayers and provide immediate assistance to help these individuals in their everyday living.
“All of Alabama’s neighboring states exempt some amount of 401K and IRA earnings from being taxed by their state government; now is the time for Alabama to do the same,” Orr added. “The Biden Administration has made no effort to provide support to Americans on fixed incomes while inflation is at a 40-year high. Our state budgets are currently in great shape, and this is an opportune time to deliver much-needed relief to retired Alabamians.”
The bill received considerable support in the Senate and now moves to the House of Representatives for consideration.