roth IRA conversion and state income tax

[Guest ed wang]

Hi, I am going to relocate from Illinois to California next summer. My question is: if I convert my regular IRA to a Roth IRA one or two month before I move to California, do I have to pay California income tax or Illinois income tax on the conversion for that tax year?

also, in case the conversion occurs 1 month after I move to California, should I pay California or Illinois income tax on the conversion?

Thank you

Ed

[Guest tcd]

You should convert in CA because you will not pay the CA tax because the Regular IRA was not decucted on your CA tax return. SEE CA FTB Publication 1005. Refer to the Roth IRA Worksheet -- line 2 and line 7.

[Mary Kay Foss]

Sorry Ed but CA law changed for 2002. The FTB publication referred to gives the answer mentioned above but that is for 2001 returns. The Franchise Tax Board has put together some good examples of the new law in the latest newsletter. Go to www.ftb.ca.gov to see if you can find Tax News.

The general rule when you move to CA is that you pay tax on all income received after you become a resident. The top CA rate is 9.3% (which most everyone gets to) so you may want to convert before you move here.