16 Oct If my wife moves to Florida, will she have to pay taxes on her 401(k)?

Q. My wife and I have been New Jersey residents since 1991. We are upon the precipice of leaving the state for Florida. She has been retired now for 10 years and I am retiring in two years. If she goes to Florida and becomes a resident — after 183 days with proper documentation — does she have to pay taxes on the withdrawals of her 401(k)? When we file our taxes, do we have to file separately, and what residency moves should she make to mitigate IRS red flags?
— Married and moving

A. Congrats on your upcoming retirement and good luck with your plans to move.

You’re correct in taking care with residency requirements.

First, withdrawals from a 401(k) will be federally taxable regardless of what state you live in, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

He said the withdrawal would be taxed by whatever state in which you live on the date of the withdrawal.

But there is a caveat in the law that allows for spouses residing in separate states to file as married filing jointly for federal tax purposes and married filing separately for state tax purposes, he said.

All states treat residency in a similar manner, he said, and you have to be able to prove that you were a resident.

Accordingly, Karu said, certain things should be done immediately upon moving to a new state.

This includes changing your driver’s license, registering to vote, registering your vehicle in the new state and changing the address on bank statements, brokerage statements and credit cards. If you belong to a house of worship in New Jersey, join one in the new state, Karu said.

Also, keep a log of the days that you are in each state with appropriate back-up, just to be able to prove that you were not in New Jersey, he said.

“As far as any federal ‘red flags,’ the IRS does not care where taxpayers live,” Karu said. “Federal law is federal law. Only the states care and residency is based on when a person moves in and out of a state.”

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This story was originally published on Oct. 18, 2022.

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