Date:  Fri, 05 Jan 2007
From:  Pat

I will be retiring this year with a University of California Retirement Plan. I will not be taking the monthly payout but rather a lump sum that I plan to roll into an IRA. I will be taking monthly payments from the IRA starting January, 2008. I will also be moving to Texas in 2008. Will my retirement income be taxed in California while I am here and what about when I move to Texas?

What is "qualified retirement income" that isn't taxable by former residents of California who move to another state?

Thank you,

Pat

Answer

Date:  Wed, 31 Jan 2007

Hello Pat,

Your retirement income received while a California resident will be taxable in California and retirement income after moving to Texas will no longer be taxable by California.

The taxability of certain retirement benefits of former residents who move is governed by Federal law.

Income from the following retirement plans are "qualified retirement income", exempt from California tax after a former California resident moves to another state:

• Qualified IRC Section 401(a) trusts exempt from taxation under IRC Section 501(a) (most qualified retirement plans provided by an employer.)
• IRC Section 408(k) simplified employee pensions (SEPs)
• IRC Section 403(a) annuity plans
• IRC Section 403(b) annuity contracts
• IRC Section 7701(a)(37) individual retirement plans (IRAs)
• IRC Section 457 deferred compensation plans
• IRC Section 414(d) government plans
• IRC Section 501(c)(18) trusts

The exclusion also applies to distributions from nonqualified retirement plans described in IRC Section 3121(v)(2)(c) if payments are made at least annually and spread over the actuarial life expectancy of the beneficiaries or spread over at least a 10-year period.

When a former nonresident of California moves and becomes a California resident, all otherwise taxable retirement income received while a California resident is subject to California tax.

Good luck!
Mike Gray

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