New York and Washington tax your retirement money differently, and each account follows its own rule. This lesson goes through them one at a time, then covers what changes if you leave New York.
The short answer. New York doesn’t tax your NYPD service pension or your VSF, and the federal government does. Your 457 is different: New York taxes it, with a $20,000 exclusion from age 59½ that, for money paid straight from the 457, needs periodic payments. Once you’re no longer a New York resident, a federal law stops New York from taxing your retirement income at all, and your new state’s rules apply.
This lesson describes a service pension. Most line-of-duty disability pensions are treated differently for federal tax. Our post Is Your NYPD Pension Taxable in 2026? covers the pension in more detail.
A lump sum straight from a 457 doesn’t get the exclusion. The Tax Department’s own memo points out that IRA withdrawals qualify even when they aren’t periodic, so some retirees “may wish to first roll-over their government section 457 plan funds into an IRA” and take the money from the IRA at 59½ or older (TSB-M-02(9)I).
That move has a cost. Once you leave City service, money in a government 457 has no 10% federal early-withdrawal penalty at any age, apart from money rolled into it from another kind of plan; money in an IRA does carry it before 59½, unless an exception applies (IRS Topic 558). So the IRA route only helps money you won’t need before 59½.
Federal law says: “No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State” (4 U.S.C. 114). It covers government pension plans and 457 plans. So once you’re no longer a New York resident, under New York’s own rules for who is one, New York can’t tax your pension or your 457 withdrawals; the state you live in decides instead. The federal tax doesn’t change.
Sources: New York Tax Law section 612(c)(3)(i) and (3-a); NYS Department of Taxation and Finance, TSB-M-02(9)I; NYS Department of Taxation and Finance, Information for retired persons; Advisory Opinion TSB-A-24(3)I (VSF, NYC Administrative Code section 13-264); 4 U.S.C. 114; IRS Topic 558. Tax rules change; confirm your own case with a qualified tax professional.
This lesson is general, not a recommendation for your own case. If you roll money into an IRA that we manage, we are paid on it. If it stays where it is, we are not. Confirm every figure and date with a qualified tax professional and the New York City Police Pension Fund before acting.