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?
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
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.
No, that is illegal. Litigated many moons ago.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?
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.
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.
Fascinating how creative the taxman can get.