February Article

Connecticut Exclusion of Retirement Income

The Connecticut W4P for Retirees

                                                          By Paul G. Massa, EA

The purpose of this article is to explain how to fill out the CT W4P when no withholding is desired.

There is a ‘moratorium’ on withholdings, as discussed below.  The following is an extract from the 2025 CT Legislative Overview:

·         Modification to Withholding requirements relative to pension and annuity distributions: Legislation modified Conn. Gen. Stat. § 12-705, so as to suspend the income tax withholding requirement on “lump sum distributions” from certain accounts that was enacted by the General Assembly in 2024.Under the legislation, said requirement is suspended from July 1, 2025, through December 31, 2026. However, said legislation does require payers of “lump sum distributions” to continue to withhold taxes from these distributions if the payee has requested withholding. The legislation is effective July 1, 2025.

While the above addresses lump sum distributions, it does NOT address the required withholding issue on periodic payments. Currently the DRS requires that 6.99% of a periodic distribution be withheld for CT taxes. With recent law changes, a majority of CT taxpayers are no longer required to pay taxes on either their pension or IRA income, thus making CT withholding no longer necessary.

The original version of the CT-W4P had no provisions to waive withholding. At a prior meeting with DRS officials, this discrepancy was brought to their attention. After much discussion, the DRS agreed to allow for the withholding waiver.

Now, every pension/IRA payor will automatically withhold the 6.99% as required.  To avoid this withholding, one must file a completed CT-W4P with each payor.

In order to have no CT taxes withheld, fill out form CTW4P. Use withholding code ‘E’ on line 1, and a ‘0’ on line 2.  The completed CT-W4P must then be submitted to each payor.

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Article by Paul Massa

Trump Accounts (Updated)

One of the provisions of the ‘Big Beautiful Bill’ is the introduction of a $1,000 Federal Seed Deposit for all eligible children born after December 31, 2024 and before January 1 2029.  Basically, for those for born during calendar years 2025, 2026, 2027, and 2028.

There will be no income test; all eligible children will qualify.  All U.S. children under 18 with a valid Social Security Number are eligible to establish a Trump Account.  Parents or legal guardians can open and manage accounts on behalf of their children.  In order to receive the one-time deposit, parents will eventually need to open the Trump account through a process managed by the United States Treasury.  We now have the instructions as to how to open the Trump 529 Accounts.

To open a Trump Account, you can elect to open Trump Accounts for your eligible children when you file your 2025 taxes or through an online portal that will be available by summer 2026.

To open the Trump Account, you can either:

a) File Form 4547 when you file your 2025 taxes or

b) wait until the summer of 2026 and file using the soon to be built online portal

In addition, if one is attaching Form 4547 to their tax return, one needs to file Form 8879-TA.  This Form is the declaration document and signature authorization for each e-filed Form 4547.  This is not to be confused with the normal Form 8879, which is the e-file authorization form.

For the latest information, check TrumpAccounts.gov.

Subsequent contributions up to $5,000/year per child are allowed.  At age 18, funds will be rolled into a Traditional IRA.

While the 529 Plans are not subject to Gift Taxes, subsequent contributions to the Trump Account are subject to Gift Taxes.  The reason is that subsequent contributions to the Trump Account are considered gifts of future interest.  All gifts of future interest do NOT receive the Gift Tax Exclusion, thus requiring the completion of the Form 709 Gift Tax Return.  If the donor is a Connecticut Resident, the CT-709 Connecticut Gift Tax Return is also required.  This differs from contributions to a 529 Plan as these contributions were not deemed gifts of future interest.  In most cases, the Unified Credit should kick in, meaning no Gift Taxes will be due, BUT the forms need to be completed.

The following is a Quick comparison of the Trump Plan vs a Traditional 529 Plan:

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