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Old 06-22-2010, 05:08 PM
 
70 posts, read 207,974 times
Reputation: 13

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Hello:

I am looking into the possibility of withdrawing money from my 401K (I know that this is a bad idea - I am just researching right now.)

I have lived in several different states while in the employ of my current company, and have made 401K contributions in each state (DC, NY, and NC.) I am considering leaving my job and moving to a state in which there is no income tax (WA.)

Assuming I am living in WA when I withdraw the money, will I owe any state tax, since WA does not assess state income tax? Or, will the tax be assessed based on the previous states in which I resided?

When I leave my job in NC, I could probably roll the money temporarily into an IRA. Then, when I move to WA, and close the IRA, would I avoid the state taxation?

Thanks

Walter.
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Old 06-22-2010, 05:28 PM
 
21,720 posts, read 37,184,337 times
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The income is generated upon withdrawal, as a general principle in the US you cannot expected to pay retro-active taxes to the state where you lived when the 401K was funded...

This is no different than a pensioner moving to Nevada even though they worked as a Chicago cop. Saves lots of dough in retirement .
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Old 06-22-2010, 05:40 PM
 
70 posts, read 207,974 times
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Quote:
Originally Posted by chet everett View Post
The income is generated upon withdrawal, as a general principle in the US you cannot expected to pay retro-active taxes to the state where you lived when the 401K was funded...

This is no different than a pensioner moving to Nevada even though they worked as a Chicago cop. Saves lots of dough in retirement .
Chet, thanks for the information. One more question for you, if you don't mind: So, as far as timing, let's say I left my job in NC, and simultaneously moved to WA and took the withdrawal (i.e., all three events - job termination, move, and withdrawal - occurred during the same week.) Would I owe no state tax?
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Old 06-22-2010, 05:58 PM
 
Location: Oakland CA
7,604 posts, read 10,628,219 times
Reputation: 8348
Quote:
Originally Posted by Walter_Sobchak View Post
Hello:

I am looking into the possibility of withdrawing money from my 401K (I know that this is a bad idea - I am just researching right now.)

I have lived in several different states while in the employ of my current company, and have made 401K contributions in each state (DC, NY, and NC.) I am considering leaving my job and moving to a state in which there is no income tax (WA.)

Assuming I am living in WA when I withdraw the money, will I owe any state tax, since WA does not assess state income tax? Or, will the tax be assessed based on the previous states in which I resided?

When I leave my job in NC, I could probably roll the money temporarily into an IRA. Then, when I move to WA, and close the IRA, would I avoid the state taxation?

Thanks

Walter.
If you just need the income and not whole magilla -- look into the 72(t) rule. The Motley Fool: Managing Your Retirement -- Getting the Money Early
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Old 06-23-2010, 05:34 AM
 
70 posts, read 207,974 times
Reputation: 13
Quote:
Originally Posted by Tallysmom View Post
If you just need the income and not whole magilla -- look into the 72(t) rule. The Motley Fool: Managing Your Retirement -- Getting the Money Early
I actually would need all the money in the account - not just income. Thanks though.
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Old 06-28-2010, 09:47 AM
 
4,479 posts, read 6,094,199 times
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Quote:
Originally Posted by Walter_Sobchak View Post
Chet, thanks for the information. One more question for you, if you don't mind: So, as far as timing, let's say I left my job in NC, and simultaneously moved to WA and took the withdrawal (i.e., all three events - job termination, move, and withdrawal - occurred during the same week.) Would I owe no state tax?
Correct me if I'm wrong somebody, but it has nothing to do with where you are that week. When you go to file your 2010 taxes next year, it's what your income for the year was and any distributions you took, etc. You will owe the taxes to Washington State.
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Old 07-01-2010, 05:18 PM
 
Location: Gilbert, Arizona
80 posts, read 155,459 times
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jkcoop, You are wrong.....when you go to file your taxes and have lived in two or more states, you are required to file partial year returns for any state that you lived in during that year. Washington of course does not have a state income tax, so you would not have to file a return for the time that you lived in that state, BUT, you will have to file for the partial year that you lived in NC. Taxes would be due to NC for all income during the time that you lived there, so it would make a big difference as to the date that you became a resident of Washington.
That said, the state tax is the least of your tax worries. Early withdrawel of an IRA/401K is taxed a federal penalty tax of 10% of the amount taken out PLUS the federal income tax due PLUS the state tax
There are some exceptions, such as using the money for a down payment on a house and some education expenses and hardships. Good Luck
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Old 07-02-2010, 12:40 PM
 
678 posts, read 1,890,925 times
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I live in Wasington State.

Here is the deal. You do not mention your age ??

1. I would be More Concerned about the Penalty for Withdrawing the Funds if you are younger then
59 1/2.

2. That aside, it does not matter whether the funds are in a 401K or a Traditional IRA acct.
They are both considered tax deffered accts.

3. By taking funds out, you would be taking a "Distribution" no matter how much.

4. Because we have no State Income Tax in Washington, that tax would not be assesed as long as you Wait to take it out "After you move here". That means you have a new residence with a valid address.
If you take it out where you are and then move, you will be under the tax rules in your current state.

5. You will have to pay Federal Taxes on the distributuion no matter where you are at the time of the distribution.

6. Keep in mind that if it is a large sum it could boost your Federal Tax Bracket Substantially.

I would do some home work and run it buy a tax preparer before you decide one way or the other.

If you are under 59 1/2 there would have to be an AWFUL GOOD REASON to do it !!!

SF
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Old 07-02-2010, 03:47 PM
 
4,479 posts, read 6,094,199 times
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Quote:
Originally Posted by richard222 View Post
jkcoop, You are wrong.....when you go to file your taxes and have lived in two or more states, you are required to file partial year returns for any state that you lived in during that year. Washington of course does not have a state income tax, so you would not have to file a return for the time that you lived in that state, BUT, you will have to file for the partial year that you lived in NC. Taxes would be due to NC for all income during the time that you lived there, so it would make a big difference as to the date that you became a resident of Washington.
That said, the state tax is the least of your tax worries. Early withdrawel of an IRA/401K is taxed a federal penalty tax of 10% of the amount taken out PLUS the federal income tax due PLUS the state tax
There are some exceptions, such as using the money for a down payment on a house and some education expenses and hardships. Good Luck
Thank you for the clarification

My mind was completely thinking of the example of when we moved from Texas to Colorado many moons ago. We only paid to Colorado that year - because there was no state income tax in Texas. I also didn't realize Washington had no state income tax.
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Old 11-24-2010, 09:13 PM
 
1 posts, read 26,372 times
Reputation: 11
We have to roll my wifes 401K from her ex employer (Fired after 10 years with no write up or anything. 1 mistake) anyway we are going to have to pull 1/2 out to pay off some bills until she finds more work. How much tax does NC or the Feds take besides the 10%? She is 49.
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