can a state tax your 401k dist if you move to another state?

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can a state tax your 401k dist if you move to another state?

Postby tjg911 » Sun May 11, 2008 3:35 pm

the subject is not clear because it's too long to fit. here's the issue -

i heard on ric edelman's show this weekend that NJ is considering coming after taxes from retirees that worked/lived in NJ and then upon retirement moved to a state that does not have a state income tax. i think this was in reference to pensions but i did not catch the whole discussion.

now this is the real question - for decades people's contributions to 401k, 403b, all tax deferred plans were not taxed in the state they resided. now when you retire and start to take distributions from these plans your state will collect taxes. however, if you leave that state you resided in for decades and move to another state typically one that does not have a state income tax, can your distributions be taxed by your former state of residence? states are becoming desparate for revenue for their social spending programs and i can see a state like connecticut where i live loving this type of confiscation of wealth. hey,, they'd dig up dead bodies and steal their gold filling if they could in CT! so does a law exist or is one proposed that allows a state to tax my 401k distributions in retirement if i moved to a state that does or does not have a state income tax like flordia or new hampshire for example?

thanks,

tom
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Postby northend » Sun May 11, 2008 6:17 pm

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Postby ziggy29 » Sun May 11, 2008 6:21 pm

I don't believe so. I think California was trying this for a while with pension income "earned" while working in California and paid to non-CA residents, but the feds smacked 'em down.
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Postby Buckeye » Mon May 12, 2008 7:04 am

I read awhile back that the States can, but none have ever done so....yet.
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Postby Mel Lindauer » Mon May 12, 2008 9:13 am

ziggy29 wrote:I don't believe so. I think California was trying this for a while with pension income "earned" while working in California and paid to non-CA residents, but the feds smacked 'em down.


Like ziggy, I recall that CA was chasing after former residents who moved to other states, and I'm pretty sure I read that CA lost in court.

PA gets around this problem by taxing contributions made to qualified plans in the year they're made (they don't allow the tax deduction for the contribution to a retirement plan that's allowed on one's Federal tax return).

Regards,

Mel
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Postby Ron » Mon May 12, 2008 9:33 am

Mel Lindauer wrote:
ziggy29 wrote:PA gets around this problem by taxing contributions made to qualified plans in the year they're made (they don't allow the tax deduction for the contribution to a retirement plan that's allowed on one's Federal tax return).

Regards,

Mel


Hey Mel - you must be (or formerly) from PA?

I'm still here (and don't claim any IRA income on my state income tax :lol: )...

The advantage is that many years later, I pay no state/local tax on the gains I've made over the years :lol: ...

- Ron
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I've never figured out how Massachusetts handles it

Postby rpike » Mon May 12, 2008 12:07 pm

I've never figured out how Massachusetts handles state income taxes on IRAs and 401Ks.

It seems like 401k contributions follow the federal model and come out pre-tax and are presumably subject to Mass state income tax on distribution presuming you are still a resident then or whatever state in which you then reside.

However, as I recall, Traditional IRA contributions are post-tax (no state income deduction for contributions) and assuming you are still a Mass resident, distributions are subject to Mass income tax once your distributions exceed the level of contributions that were originally taxed by Mass in the year contributed. I know of no Mass form to claim your Mass tax basis until you start taking distributions potentially many years later or when doing a Roth conversion. There was a ruling that if you move to another state that taxes IRA distributions, you cannot claim credit for these Mass taxes paid in earlier years and end up having paid double state tax on those contributions.

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Postby Speedy » Mon May 12, 2008 1:23 pm

This article seems to be applicable:

Avoiding State Tax on an IRA

Can taxpayers avoid California income tax on their IRAs by moving to a state that has no state income tax?

Yes, since 1995, by federal law (HR 394 signed by President Clinton Jan. 10, 1996), IRA distributions may not be taxed by a state where the taxpayer is not a resident.


Source: http://findarticles.com/p/articles/mi_m ... i_78177037

This article is a little bit dated (2001). Seems like this would apply to 401's also, but not sure.

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Postby Speedy » Mon May 12, 2008 1:50 pm

Northend, in his brevity above hit the nail on the head. HR-384 and Public law 104-95 are one and the same.

Unless this law has subsequently been appealed, no state can tax 401 or 403 income of the resident of another state.

Being a resident of California, I'm pretty sure I would have read something if this law had been appealed or overturned in court.
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Postby Mel Lindauer » Tue May 13, 2008 12:25 am

Ron wrote:Hey Mel - you must be (or formerly) from PA?

I'm still here (and don't claim any IRA income on my state income tax :lol: )...

The advantage is that many years later, I pay no state/local tax on the gains I've made over the years :lol: ...

- Ron


Hi Ron:

Yeah, I had a business in Philly for 30 years, so I know all about the PA tax system. Of course, life's much simpler when you live in a state like FL where there's no income tax issues to deal with! :D

Regards,

Mel
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Postby tjg911 » Tue May 13, 2008 4:38 pm

thanks all. 104-95 seems to pretty much say you can't do it. okay... for today.

i guess unless congress repels or amends this law, ct or any other state can't try to extract the state tax on 401k or rollover ira distributions because that money was earned in ct but taken out when a resident of another state.

it really is scary here in ct. the legislature has run this state into the ground over the past 18 years starting with an income tax by wiecker in 1990 or 1991. ct is run by and for the state labor unions and the educational bureaucracy. ct is passing all sorts of crazy laws to extract new revenues to fund their social welfare state (not necessarily welfare)... see the verbage under my avatar. they are driving all businesses out and no business in their right mind would move to connecticut due to the draconian business laws and business taxes.

it really is a disaster in the making and if we don't vote just about all these bums out in november we are truly doomed. i really meant it when i feared they'd do this cuz they truly are desperate and it's going to be significantly worse with energy costs, so many people leaving this state and so many coming here cuz it's a socialist paradise! the latter take but contribute nothing.

for many reasons i like ct, lived here all my life but i am getting worried about 'the last one out turn off the lights'. i am starting to consider selling my house and getting out before it's too late and i have a white elephant not a house (a modest 1500 sq ft in a nice area but without jobs who will buy it). hugo chavez and fidel castro would be proud to call ct their own!

tom
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