Deferred compensation

[Franklin]

Does anyone gave a good resource center for deferred comp. I have a question about which state will tax my distributions. I earned all of the monies in a high tax state and plan to move to a low tax state once the distributions begin. The distributions are mixed per each year I deferred. Some will payout over 5 years and others I ran out to 15 years. From my research so far I get mixed messaging. I'd hate to have the high tax state take their cut once I move to the low cost state (then have the low cost state ask for their cut once I move). Anyone out there have experience with this?

 

[lucky penny]

After you move, the income may or may not be taxed by the new state where you reside; as with pension income, this varies by state:

https://rpea.org/retirement-planning/pension-tax-by-state/

When you no longer live there, the high-tax state doesn't get a cut.

 

[Franklin]

After you move, the income may or may not be taxed by the new state where you reside; as with pension income, this varies by state:

https://rpea.org/retirement-planning/pension-tax-by-state/

When you no longer live there, the high-tax state doesn't get a cut.

Thanks Lucky. My Mega corp (in California) says they plan to withhold California state tax even if I move to a less taxed state (Georgia). They say that any distributions recieved within the first 10 years from termination would be withheld for California even though I may have moved out of state. My deferred comp is in a non qualified plan and pays quarterly between now and out beyond 15 years. Seems my new state would ask for their share once I move. I read the link you gave me and both states tax the income at their normal state rates. I guess Ill need to either call the number in the link or get a tax attorney. Mega corp said they would withhold California tax and I'd have to seek a refund once I move (seems odd).

 

[lucky penny]

Thanks Franklin. The withholding requirement seems odd since it seems clear that California can't impose income tax on a non-resident who receives such distributions. If you get more information, I'm interested in finding out.

 

[Huston55]

Thanks Franklin. The withholding requirement seems odd since it seems clear that California can't impose income tax on a non-resident who receives such distributions. If you get more information, I'm interested in finding out.

The FTB is...well, aggressive might be an understatement. Here’s a link & excerpt that might help. See example #10 below. Also, go to the FTB’s website.

https://www.ftb.ca.gov/forms/misc/1100.pdf

 

[pb4uski]

^^^^ I don't see either of those examples as being outrageous. In example 9, the taxpayer would need to file a non-resident tax return... I did lots of those.

Example 10 is a bit unusual for cash basis taxpayers and might not survive a court challenge... especially since the logical extension is that any deferred comp for services performed in CA would be taxable.

I suspect that Franklin's deferred comp may be non-qualified and that California may treat qualified and non-qualified retirement benefits differently.

 

[pb4uski]

OP may find this useful.

Distributions from Non-Qualified Benefit Plans; Rules for determining Califonria residency for tax andÂ* pension plan purposes

https://www.ftb.ca.gov/law/rulings/active/lr11_02.pdf

 

[Huston55]

OP may find this useful.

Distributions from Non-Qualified Benefit Plans; Rules for determining Califonria residency for tax andÂ* pension plan purposes

https://www.ftb.ca.gov/law/rulings/active/lr11_02.pdf

Better reference; more on point.

 

[Franklin]

very helpful thanks

 

[gayl]

State pensions are taxable by California HOWEVER you're asking about a 401k (deferred comp). If that concerned, why don't you roll it out to an IRA? Mine was a 457 (civil sector employee) and I had no issue transferring it to Schwab

I have 27% FED / 3% CA state withheld on disbursements to avoid an April pymt