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How to determine state tax for 401(k) distribution as a part-year resident?

Personal Finance & Money Asked on May 28, 2021

I’m trying to help my in-laws with their taxes and I just want to make sure about something before filing. They bought a home in Texas (no state tax) in the middle of 2020, still maintaining residency in West Virginia until my father-in-law retired. Here’s the series of events:

  • Both lived in West Virginia at the beginning of 2020
  • They bought a home in Texas in the middle of 2020
    • To make a down payment, my father-in-law cashed out his 401(k), roughly $167,000
  • My mother-in-law moved to Texas in August 2020 (homemaker, no income)
  • My father-in-law remained in West Virginia until he retired, November 2020

On their 1099-R, they’ve clearly withheld Federal Taxes (Box 4, ~$33,000) but I see in Box 14 that they withheld $0.00 for state tax. When I get to the allocations for West Virginia, I’m asked for the amount of West Virginia Sourced income that was received while a resident of West Virginia, and the amount that was received while not a resident of West Virginia. One of the lines has the 401(k) distribution amount, ~$167,000, under the Federal heading with the other two fields empty (wv resident, wv non-resident).
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I think the correct data here is to put the full $167,000 in one of these fields. I wanted to double-check though because this instantly raises their state taxes owed by $10,000+. This doesn’t seem unreasonable if they didn’t actually pay state tax on their 401(k) distribution, but I wanted to check here first to see if there are other things I should be considering.

I’m using TurboTax, fwiw.

One Answer

If the 401(k) distribution was during a time when they were West Virginia residents, then I believe it would be taxable by West Virginia. I believe that they may be considered West Virginia part-year residents, since they moved out during the year. If the 401(k) distribution was during the part of the year when they were West Virginia residents, then I think you should put the whole amount as West Virginia income. How to determine when exactly they switched from resident to nonresident, I am not sure.

Answered by user102008 on May 28, 2021

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