State Taxes and Distributions from Retirement Plans
If an individual in California works in California all their lives accumulating retirement assets in pre-tax 401(k) plans, NonQual plans, pension plans, and IRA’s and then moves to Nevada… are their distributions going to be taxed at California rates because that is where they lived while accumulating those assets and earning income? If the client would be subject to CA income tax rates on these retirement distributions… how does the IRS track this when people move to a different state and take distributions from money earned in another state?
Thank you!
Permalink Submitted by Alan - IRA critic on Fri, 2014-05-09 21:50
What you refer to is called a source tax. The source tax was eliminated back in 1996 by Congress, so CA, NY or other formerly aggressive high tax states cannot levy a tax on retirement plan distributions taken by residents of other states who made the contributions while formerly living in those states. Since NV has no state income tax, the individual will not be paying any state income taxes on these distributions.