401K and State tax?

[huutrinon]

Hi,
Are there any Pennsylvania retirees out there? If so, I have a question may be some of you can help me out:

1. Do we pay the state and local tax for any amount withdrew from 401K when you are qualified (59 1/2)? I know for sure that you have to pay the Fed, but not so sure about the state and local. I checked my pay stub and seems to me that i paid the state income tax based on my whole salary.

Thanks in advance!

[rs0460a]

You are correct. Unlike most states (for example, NJ) we paid state/local tax on our earned income during our working lives. 401k/IRA distributions are not considered "earned income" and therefore (along with the gains) are not taxed.

The PA state/local taxing authorities wanted to get their money immediately, rather than waiting for you to retire many years later ...

Here's an article on the subject:

Pennsylvania Income Tax Guide - What You Need to Know About PA Personal Income Tax

- Ron

[nun]

Originally Posted by rs0460a

You are correct. Unlike most states (for example, NJ) we paid state/local tax on our earned income during our working lives. 401k/IRA distributions are not considered "earned income" and therefore (along with the gains) are not taxed.

The PA state/local taxing authorities wanted to get their money immediately, rather than waiting for you to retire many years later ...

Here's an article on the subject:

Pennsylvania Income Tax Guide - What You Need to Know About PA Personal Income Tax

- Ron

I'm assuming that by "PA retirees" the OP means that they once worked for the State of PA. I know that in MA the state retirement fund is tax deferred for Fed tax, but after tax for State tax.

[CyclingInvestor]

If you are looking into moving to PA and are RE, be careful. Other sources imply that
IRA distributions are only tax-exempt if you are over 59.5, so 72t distributions would be
taxable.

Taxes by State

"Three states (New Jersey, Massachusetts, and Pennsylvania) do not allow IRA contributions to be deducted from taxable income. Of the three, only Pennsylvania does not tax IRA earnings of taxpayers age 59 ½ years or older, since earnings are treated like pension income, which is tax exempt."

Does anyone have a concrete answer about this ?

[rs0460a]

Originally Posted by nun

I'm assuming that by "PA retirees" the OP means that they once worked for the State of PA. I know that in MA the state retirement fund is tax deferred for Fed tax, but after tax for State tax.

Nope; I was born in PA, worked in PA (non-government), retired in PA. I don't pay state/local tax on my IRA distributions. Yes, I do pay Federal (since it was never taken out when I contributed).

- Ron

[huutrinon]

I am living in PA and not working for the State. Recently retired for few weeks at 55. Drawing the pension, and planning to roll over the 401K to Vanguard in Jan 2008. Seems to me I have to pay the PA state tax on my pension since the form I signed did mention that PA will tax on pension.

Not so sure about the 401K, but according to rs0460a that I will not have to pay the PA state and local tax on the 401K withdrawals when I am 59 1/2. I wonder if I withdraw at the age of 55, do i have to pay the state and local tax? I know i will pay 10% penalty for early withdraw.

Thanks!

[rs0460a]

Originally Posted by huutrinon

Seems to me I have to pay he PA state tax on my pension since the form I signed did mention that PA will tax on pension.

That's questionable, per the following:

https://revenue-pa.custhelp.com/cgi-...i=&p_topview=1

Guess you will have to contact PA Dept of Revenue to get a ruling on both questions (be sure you get the answer in writing!)

- Ron