IPERS Employer Handbook Section 5: IPERS Plan Contributions

Pretax Contributions

Effective January 1, 1995, members began making contributions to IPERS on a pretax basis for federal income tax purposes; effective January 1, 1999, members also began contributing to IPERS on a pretax basis for Iowa state income tax purposes.

These tax treatment changes did not affect any IPERS or FICA reporting procedures. However, this process does lower the member's state and federal taxable income, which may in turn decrease the member's state and federal tax liability. The table below illustrates how this works:

In practice this means:

• Pretax IPERS contributions reduce a member's taxable wages for federal and Iowa state income tax purposes. Member IPERS contributions made on or after January 1, 1995, are not included in taxable income for federal income tax purposes. In years 1999 and after, employee IPERS contributions are not included in taxable income for Iowa state income tax purposes.
• If a member terminates IPERS-covered employment and receives a contribution refund, the funds attributable to IPERS contributions made on or after January 1, 1995, are taxable to the member for federal income tax purposes. The funds attributable to IPERS contributions made on or after January 1, 1999, are taxable to the member for Iowa state income tax purposes as well.
• Upon retirement, the retirement benefit will be fully taxable for federal and state income tax purposes for all contributions made on or after January 1, 1999. It will be partially taxable for federal income tax purposes if the member made contributions before January 1, 1995, and it will be partially taxable for state tax purposes if the member made contributions before
  January 1, 1999.

IPERS sends IRS Form 1099 annually to members who receive distributions and benefits from the Plan.