Moved during "spread-out-over-four-year" period of 1998 Roth

[Guest raf5de6k]

In 1998, I took advantage of 4 year averaging by rolling a number of IRAs to Roth IRAs. The tax on these roll-overs is spread over 4 years.

In 2000, I moved out of Ohio to another state. The Ohio State Tax Report, Fall 1998, page5 states:

"With respect to individuals who are Ohio residents at the time they make the roll-over but then become nonresidents during any portion of the four year period: such individuals must file the IT-1040 for the four year and "situs" to Ohio (for purposes of computing the nonresident credit) the "spread-out-over-four-years" income." Ref: Ohio Revised Code, section 5747.01(A)

It is not clear to me if this "situs" means that I will have to file to Ohio for a credit because I'm now a nonresident. I can imagine that I would have to pay tax on this roll-over income in two states. Any comments you might have would be appreciated.

raf5de6k@yahoo.com

[Mary Kay Foss]

Unfortunately, you could be taxed in two states. When the same income is subject to tax in more than one state, you get a tax credit. In effect, you pay the income tax at the higher rate between the two states and you must file an additional return.

I practice in California. When Roth first came in, CA was going to allow people who moved to the state after 1998 to escape taxation on the remaining years of the 4-year spread. Many people were planning to move out of the state for 1998, in order to avoid the CA tax (Nevada is nearby and has no income tax) so they did an about face. The current rule is that a resident must include in CA income the same amount that is in Federal income.

If Ohio is going to tax you, I hope you didn't move here. The maximum rate is 9.3% and almost everyone must pay it.

Good luck.

[John G]

Great states for Roth conversions include: NH, NV, AL, TX, FL, TN, and WY (did I leave one out?) which have no income taxes.