State Income Tax Residency Issues and Retirement Income 2024-25 Flashcards
(16 cards)
Review Question
Which of the following statements about residency and domicile is accurate as per the State Income Tax Residence?
A. Residency is where a person has a permanent location.
B. Domicile is generally referred to as a person’s primary residence.
C. State of residency taxes a person’s income from all sources.
D. A person can have more than one domicile in a year.
Answer:
Domicile is generally referred to as a person’s primary residence.
Review Question
Identify the following states that do not allow a deduction for making an IRA contribution.
Choose one
A. New Jersey
B. Georgia
C. California
D. Minnesota
Answer:
New Jersey
Explanation
New Jersey does not allow a state income tax deduction for contributions to traditional IRAs. While the state follows federal rules for taxation, IRA contributions are not deductible on the New Jersey state income tax return
Review Question
Recognize the following statements that are accurate regarding Roth IRAs and states with an income tax.
Choose one
A. States generally follow the federal income tax rules for Roth IRA distributions.
B. Roth IRA distributions amount is taxable upon distribution regardless of age.
C. The state’s exclusion rules don’t apply to the taxable part of the distribution.
D. The distribution amount is taxable even if it satisfies a state’s exception.
Answer:
States generally follow the federal income tax rules for Roth IRA distributions.
Explanation
Most states with income taxes align their rules for Roth IRA distributions with federal income tax rules. Specifically, if a Roth IRA distribution is not taxable at the federal level (e.g., qualified distributions), it is generally not taxable at the state level either. If the distribution is taxable (e.g., non-qualified distributions), state exclusion rules often apply, depending on the state’s specific tax policies.
Review Question
Which statement is TRUE concerning how states tax IRA distributions after an individual establishes domicile in a new state?
Choose one
A. The former state generally taxes the IRA distribution after a person takes domicile in a new state.
B. The new state of domicile generally is not permitted to tax the IRA distribution.
C. All states permit taxpayers to carry over their IRA basis from the former state.
D. A taxpayer could enjoy a tax subsidy by relocating to a state with a lower state income tax.
Answer:
A taxpayer could enjoy a tax subsidy by relocating to a state with a lower state income tax.
Explanation
Relocating to a state with a lower or no state income tax can provide a tax benefit on IRA distributions, as the individual would pay less tax on these distributions than they would in a higher-tax state. Many retirees choose to establish domicile in low-tax or tax-free states to minimize taxes on retirement income, including IRA distributions, thus enjoying a potential “tax subsidy.”
Review Question
Which state does not impose an inheritance tax on beneficiaries?
Choose one
A. Kentucky
B. Nebraska
C. Maryland
D. North Dakota
Answer:
North Dakota
Explanation
North Dakota does not impose an inheritance tax on beneficiaries. Beneficiaries who inherit assets from a North Dakota resident do not face state inheritance taxes.
Review Question
Identify the states that do not provide any special reduction in the taxation of Social Security benefits.
Choose one
A. Kansas
B. Minnesota
C. New Mexico
D. Vermont
Answer:
Minnesota
Explanation
Minnesota does tax Social Security benefits without offering any reduction for taxpayers based on AGI levels. Unlike other states that provide exemptions or partial relief to lower-income retirees, Minnesota applies its state income tax to Social Security benefits for most residents, regardless of income level.
Assessment
Which states permit a deduction for IRA contributions?
Choose one
A. Massachusetts
B. Ohio
C. Texas
D. Alaska
Answer: Ohio
When determining a person’s domicile, certain factors are typically considered to establish their primary residence. Which of the following is NOT necessarily a factor in this determination?
Choose one
A. Where the family lives.
B. Where the taxpayer votes.
C. Where the taxpayer spends most of their time.
D. Where a person travels to their work location.
Answer:
Where a person travels to their work location.
Assessment
Recognize the following statement that accurately reflects how most states handle certain retirement account transactions.
Choose one
A. Most states treat qualified rollovers as non-taxable transactions.
B. Most states follow a 90-day automatic waiver rollover rule.
C. Most states do not tax amounts that are converted to a Roth IRA from an IRA.
D. Most states treat trustee-to-trustee transfers as taxable transactions.
Answer:
Most states treat qualified rollovers as non-taxable transactions.
Assessment
When states determine the taxability of retirement distributions, they consider various factors. Identify the following that is NOT a relevant factor in this determination.
Choose one
A. Whether the distribution is a lump sum or periodic.
B.The age of the taxpayer.
C. The gender of the taxpayer.
D. The type of retirement plan.
Answer:
The gender of the taxpaiyer
Assessment
Spot the state that currently imposes a tax on retirement income.
Choose one
A. Illinois
B. Iowa
C. Hawaii
D. Alabama
Answer:
Alabama
Assessment
Which of the following statements is generally CORRECT concerning how states with an income tax treat inherited IRA distributions?
Choose one
A. A beneficiary of an inherited IRA pays state income taxes on the fair market value of the IRA.
B. A beneficiary of an inherited IRA pays state income taxes on amounts withdrawn from the IRA.
C. A beneficiary of an inherited IRA is not subject to the RMD rules because of the final Treasury regulations.
D. A beneficiary is taxed by the state where the deceased was domiciled when taking a distribution from an inherited IRA.
My Answer:
A beneficiary of an inherited IRA pays state income taxes on amounts withdrawn from the IRA.
Recognize the correct statements concerning how states treat early distributions from retirement accounts.
Choose one
A. All states apply a 10% early distribution penalty on the distribution amount.
B. Some states apply a 10% early distribution penalty on the distribution amount.
C. A few states apply their version of an early distribution penalty on the distribution amount.
D. States are not permitted to apply a penalty on an early distribution amount.
My answer:
A few states apply their version of an early distribution penalty on the distribution amount.
Assessment
Identify the states that are phasing out their inheritance tax as discussed in the webinar.
Choose one
A. Iowa
B. Pennsylvania
C. New Jersey
D. Nebraska
My Answer:
Iowa
Assessment
Recognize the correct statement concerning the response by states to the federal provision allowing 529 plan rollovers to a Roth IRA as of March 30, 2024.
Choose one
A. Every state with an income tax has adopted the provision.
B. About half of the states with an income tax have adopted the provision.
C. Only a small number of states with an income tax have adopted the provision.
D. No states with an income tax have adopted the provision.
Answer:
About half of the states with an income tax have adopted the provision.
Assessment
Recall the states that currently tax social security benefits.
Choose one
A. New Hampshire
B. Oregon
C. Arizona
D. Connecticut
Answer
Connecticut
