IRA State Taxes
Retirement income and IRA withdrawals sometimes receive different tax treatment
in different states. These differences in state tax laws present opportunities
for you to manage your tax bill and cash flow more efficiently.
Here are a few of the differences among state IRA tax laws:
States Where All IRA Income Is Tax-Free (State IRA tax)
In Florida, Texas, Nevada, and other states where there are no state income
taxes, residents can keep a greater share of their IRA distributions, which
are counted as income. Therefore, if your clients are thinking about relocating
to the Sunshine State from a state such as New York, which assesses income
taxes on IRA withdrawals and other retirement income, they may consider holding
off on tapping their IRA until they move. That way, they can avoid any
state income IRA taxes on the distributions in New York.
States Where IRA Withdrawals Are Tax-Free
Certain states ( New Jersey, for example) don’t allow
taxpayers to deduct IRA contributions from their taxable income on their state
tax return. But later on when those contributions come out of the IRA,
residents of these states typically don’t have to worry about paying
IRA taxes on the withdrawals.
States That Exclude Some Retirement Income from Taxes
Several states allow residents of a certain age (typically age 65 or older)
to exclude a portion of their retirement income from state income taxes. But
state tax laws may differ on whether IRA distributions can be counted as retirement
income. A resident of Kentucky, for example, can include IRA withdrawals
within the $40,200 of annual retirement income that is exempt from state income
tax. And in New York, up to $20,000 of qualified private pensions for
those 59½ and older is exempt. While in another state, only part
of the IRA money may be exempt from state income taxes, even though other forms
of retirement income are.
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