Personal Consumer Issues • Philadelphia PA

I'm actually on a short vacation in Philly right now, and after some research, I've found that I'm not quite a fan of how retirement account contributions/withdrawals work in the state of PA.

There are essentially no pre-tax retirement account contributions here. All retirement accounts are funded post-PA tax. And if you relocate to PA for retirement, any pre 59.5 retirement account withdrawals (like myself and DW with our 457's) will be subject to a cost recovery method by the state.... If state taxes weren't paid on the way in, they will be paid on the way out! Even Roth IRA basis!

This can lead to an interesting double taxation situation for any after-tax retirement account contributions if you relocate from another state where you paid state taxes and attempt to withdraw, for example, Roth basis, again pre 59.5.

I do not think the bolded part is correct...the wording is that withdrawals from a Roth account are taxable "to the extent that the distribution exceeds previously taxed contributions", which I would interpret as meaning that only the earnings and not the basis would be subject to state income taxes.

I wouldn't be able to find it right this second, however, I read something that I seemed to interpret as ALL contributions/withdrawals to ALL retirement accounts would be subject to PA state taxes if not paid on the way in.... Then they will be paid on the way out. Notwithstanding whether or not you paid other state taxes on the contributions.

Clarification would always be appreciated though if anyone is familiar with the PA income tax code, in relation to retirement account contributions while working in another state.

"Explain the taxability of Roth IRAs according to PA income tax rules.
Most of the personal income tax rules that apply to individual retirement accounts, annuities, or simplified employee pensions also apply to Roth IRAs. For example--

An exclusion is allowed for payments made by employers directly to Roth IRA trustees or issuers for the benefit of employees.
No exclusion or deduction is allowed for contributions to a Roth IRA made by, on behalf of, or attributable to, an employee or self-employed person, directly or indirectly, whether through payroll deduction, a salary reduction agreement or otherwise.
Income on assets held in a Roth IRA is not taxable.
Distributions are includable in income to the extent that contributions were not previously included if made before the individual for whom the account is maintained obtains age 59 ½ or retires from service.
The cost recovery method is used to determine the portion of a distribution to be included in income.

Special rules, however, apply with respect to roll over contributions and plan conversions.

The conversion of a traditional IRA to a Roth IRA is generally not taxable. That is, monies transferred from a traditional IRA to a Roth IRA via conversion (whether by a trustee-to-trustee transfer or a roll-over within 60 days) are generally not subject to Pennsylvania personal income tax. However, any amounts transferred from the traditional IRA that are not put into the Roth IRA, be it by federal income tax withholding or otherwise, are subject to Pennsylvania personal income tax. In such a situation, basis is allocated pro-rata between the taxable distribution and the non-taxable conversion. If there is a partial rollover/conversion, the basis in the traditional IRA must be allocated pro-rata between the traditional IRA and the Roth IRA."

https://revenue-pa.custhelp.com/app/ans ... TkhwQXE%3D

Statistics: Posted by Que1999 — Sat May 04, 2024 7:37 am — Replies 23 — Views 1519

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