Tax Alert: Fate of 401(k) when relocating.
Posted on | September 23, 2008 |
BankRate has an interesting topic over at its Tax Talk column. A reader asks their expert, Expert: George Saenz, CPA:
“I am curious about my tax-deferred 401(k) plans when I move. If I move from New York to North Carolina or South Carolina, will New York come after the taxes that were deferred while I am working here now? I can’t seem to find the answer to this question anywhere.”
This was something I never thought about. I think most people probably think that their retirement account is their own. At least until they start making withdrawals and the income may be taxed, as it is in a 401(k) account. But Mr. Saenz’s answer does make a kind of sense:
“If you’ve lived and worked in New York or any other state that imposes an income tax for that matter, your retirement accounts have been in part subsidized by the state.
The subsidy is the state tax savings you realized when you excluded the retirement contributions from taxable income. If you move prior to collecting your retirement pay, you’ve eroded that state’s tax base. If you move to another state that imposes an income tax on retirement accounts, you’re enriching that state’s coffers at the expense of the other state in which you worked.”
Looks like this is yet another caveat to the tax deferred retirement accounts that we need to be aware of.
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