Is your state still fully taxing retirement pay? MOAA National serves in an advisory capacity for state-specific issues such as income tax exemption. Please contact your local MOAA council as state legislation must originate at the state level.

Military retirees in Colorado scored a big victory last month when Gov. John Hickenlooper signed a law extending income-tax deductions for those under the age of 55.

The bill, which is designed to encourage veterans to stay in Colorado after leaving the military, allows retired servicemembers who aren't yet 55 to claim deductions in staggered amounts over four years.

Before this move, Colorado had been one of 10 states without any state income tax deductions for military retirees.

“The goal was to keep ... and attract veterans to Colorado,” said Shelly Kalkowski, a retired Air Force lieutenant colonel who works on the Colorado Councils and Chapters of the Military Officers Association of America. “If they're Colorado residents [who] join the military, they want to live here but said it's too expensive to come back. This gives them a little more leeway in their disposable income to come here.”

Other states that tax military retiree compensation include California, Georgia, Montana, New Mexico, North Dakota, Oregon, Rhode Island, Vermont and Virginia. Last month, MOAA called on California lawmakers to offer deductions to military retirees after servicemembers there asked for help.

MOAA believes no state should fully tax military retirees.

Related reading: MOAA Calls for California to Stop Fully Taxing Military Retirement Pay

Colorado's bill works on a four-year phase-in, allowing individuals under 55 to claim deductions. Those tax deductions will be made in an amount equal to an individual's military retirement benefit not to exceed $4,500 in the first year, $7,500 in the second year, $10,000 in the third year and $15,000 in the fourth year.

The bill requires renewal in the fifth year.

There are about 400,000 veterans in Colorado, according to U.S. Census data. Many come from the five Air Force bases and one Army installation there: Buckley Air Force Base in Aurora; the Air Force Academy and Cheyenne Mountain and Peterson Air Force Bases in Colorado Springs; and Schriever Air Force Base and Fort Carson Army Base in El Paso County, Colo.

Kalkowski worked with the United Veterans Committee of Colorado - a nonprofit coalition of 50 military service organizations, including MOAA - to get the bill to the governor.

States value retired military members because they bolster the state economy by bringing retirement income and non-taxed VA benefits, like the GI Bill, she said. They also make large purchases, such as homes and vehicles, Kalkowski added.

In California, researchers found the economic impact of exempting retired military pay from taxes would be significant after 10 years. According to a study partially funded by MOAA, researchers determined there would be 12,600 more jobs, $830 million added to total personal income, $1.27 billion added to gross state product, and $2 billion added to business sales.

Retirees are also likely to start a second career - tapping into their military skills and knowledge to complement the local workforce or start their own business, she said

“People now recognize veterans - and especially retired military who already have a vast amount of experience in a lot of different areas - bring a lot of workforce experience that's valuable to the communities,” Kalkowski said. “We're an asset. I think a lot of states are recognizing that having military retirees come to their state is an asset to their economy and workforce.”

State Rep. Jessie Danielson, one of the bill's sponsors, said the bill will benefit thousands of veterans across Colorado.

“This tax break for military retirees honor veterans' service and goes a long way towards making Colorado the most veteran-friendly state in the country,” she said.

Amanda Dolasinski is MOAA's staff writer. She can be reached at amandad@moaa.org. Follow her on Twitter @AmandaMOAA.