Which states tax distributions

[John A]

For what state should the taxes be paid upon distribution to a participant in a qualified plan: a) to the state the participant lived in when the money was deferred b) the state the participant lives in now when the funds are distributed c) the state the sponsor is headquartered in, d) other?

[Appleby]

Effective tax years beginning 1996, states cannot tax former residents on their retirement plan distributions. Public Law 104-95(ban on source taxes). Any applicable state tax will be based on the individual’s state of domicile (permanent residence).

[Guest b2kates]

I agree with Appleby,

b) is correct answer, state where participant is living when funds are disbursed.

Not all states tax pension distributions, i.e. Pennsylvania which has an income tax exempts pensions from taxation.

[mbozek]

The lack of an income tax is why retirees prefer FLA and Nevada.

[Mary Kay Foss]

California has a unique way of taxing nonresdients and part-year residents. You calculate a tax on your entire income and pay CA the ratio of the CA adjusted gross income to the total adjusted gross income. Technically, you're not paying tax on your distribution, but it helps put you in a higher tax bracket.

I don't know if other states use a similar method, but we need the money here in CA.

[Guest b2kates]

The california approach seems to violate 104-95. including the pension distribution in determining taxable income even just to push taxpayer into higher bracket is the same as using tax exempt income to push into higher bracket.

My understanding of 104-95 do not even count for non-resident state.

[mbozek]

The CA method is called Global taxation and applies to corporations as well as individuals. NY also uses global taxation in computing the NY tax on non residents. I am not sure tht this is a violation of fed law since the amount of the tax is a based on the % that CA income bears to global income (eg. fed income) thus retirement benefits are not included in the numerator (CA income). Check the income tax return to see if there is a line to remove the non CA pension amount from the global income on the CA return.

[Guest b2kates]

mbozek,

what I was attempting to illustrate; but much more eloquently stated by you.