Clawback from state where you used to live for IRA deductions.

[Time2]

Has any state tried to collect the taxes lost to IRA deductions after you moved out of state to a state that does not have a state tax?

 

[Sunset]

Never heard of this, seems odd.

Would they claw back if you died ?

I'll be surprised if it's a thing, do they pay you more if you move to a State with higher tax ?

 

[CyclingInvestor]

I remember California discussed trying this decades ago, but I have seen nothing recently

 

[MichaelB]

Has any state tried to collect the taxes lost to IRA deductions after you moved out of state to a state that does not have a state tax?

They cannot, federal law prohibits state taxation of retirement income on non-residents.

A federal law signed in 1996 prevents states from taxing IRA distributions taken by a former resident who is now living in another state. This law relates to pensions and some types of deferred compensation as well as IRAs. https://www.fedweek.com/retirement-policy/residency-requirements-and-ira-distributions/

U.S. Code § 114 - Limitation on State income taxation of certain pension income:
(a) No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State (as determined under the laws of such State). https://www.law.cornell.edu/uscode/text/4/114

 

[cathy63]

It would be much easier for states to make IRA, 401(k), 403(b), etc contributions non-deductible for state tax purposes. That would allow them to collect the funds now and avoids the need for keeping track of retirees who've moved or died in order to levy taxes outside their own borders. It also avoids the legal challenges such a move would certainly engender. (edit: cross-posted with MichaelB who pointed out that it's illegal to tax non-residents' retirement income.)

I don't know if any state doesn't recognize IRA deductions, but that's how the California tax code treats HSAs. It just ignores them, so they're treated the same as any taxable brokerage account.

 

[marko]

Fascinating how creative the taxman can get.

 

[jebmke]

It would be much easier for states to make IRA, 401(k), 403(b), etc contributions non-deductible for state tax purposes. That would allow them to collect the funds now and avoids the need for keeping track of retirees who've moved or died in order to levy taxes outside their own borders. It also avoids the legal challenges such a move would certainly engender. (edit: cross-posted with MichaelB who pointed out that it's illegal to tax non-residents' retirement income.)

I don't know if any state doesn't recognize IRA deductions, but that's how the California tax code treats HSAs. It just ignores them, so they're treated the same as any taxable brokerage account.

That is essentially what Maryland does with certain state pension contributions. The contribution is taxable in Md but the distribution is not taxed to the extent of the contributions.

 

[Time2]

Thanks all, just curious, I moved from a state tax state to a no state tax state 28 years ago and back then there was talk about claw backs.

 

[pb4uski]

Has any state tried to collect the taxes lost to IRA deductions after you moved out of state to a state that does not have a state tax?

No, that is illegal. Litigated many moons ago.

 

[beyou]

The issue actually faced is to prove you no longer live in your old high tax state.
It’s not IRA’s specifically they go after, it’s all your income. If you claim you live in another state, you may have to back it up.

 

[FI_RElater]

The issue actually faced is to prove you no longer live in your old high tax state.
It’s not IRA’s specifically they go after, it’s all your income. If you claim you live in another state, you may have to back it up.

I'd say that the OP, after the 28 years in the other state, would easily be able to do that, as long as they'd fully divested all assets from the other state (no other house, etc ...so no second home there and no way for the other state to be able to claim otherwise)

 

[Philliefan33]

It would be much easier for states to make IRA, 401(k), 403(b), etc contributions non-deductible for state tax purposes. That would allow them to collect the funds now and avoids the need for keeping track of retirees who've moved or died in order to levy taxes outside their own borders. It also avoids the legal challenges such a move would certainly engender. (edit: cross-posted with MichaelB who pointed out that it's illegal to tax non-residents' retirement income.)

I don't know if any state doesn't recognize IRA deductions, but that's how the California tax code treats HSAs. It just ignores them, so they're treated the same as any taxable brokerage account.

PA does not recognize IRA or 401K/403b etc contributions, so you pay taxes on that income when the contribution is made. The benefit of that is realized if you are a PA resident during your draw-down stage: PA does not tax 1099-R income or Social Security.

 

[athena53]

Fascinating how creative the taxman can get.

This. I started work with an employer in KS in mid-2002 and worked from home in NJ the first year. We moved to KS in mid-2003. I got a bonus in March, 2004. They withheld NJ taxes on it. I asked HR and they told me that it was because the bonus was based on my work in 2003 and half of that was in NJ. I knew HR was just following the law and I got an offset on KS from that but it still annoyed me.

I've also found that if I move funds from the MO-approved 529 accounts, which have limited investment options, to Fidelity, which is not a MO-approved plan, I have to pay MO taxes on what I move. So, I now put the max that MO will let me deduct ($8K or $9K) in the MO plan and after that it all goes into Fidelity.