Cash Balance Plan: Can State Tax Matter?

Cash balance plan state income tax: why can state income tax matter? The federal side isn't the whole tax story, and the picture depends on the state. This video explains the general idea. It names no state and shows no rates. David is an illustrative example. Episode 18 of Cash Balance Plans 101 from Emparion, the last lesson of Module 3. Learn more: https://www.emparion.com/?utm_source=... State income tax, in short: the tax story has a federal side and, in a state with an income tax, there can be a state side too. Federal tax on the plan's money generally waits until benefits are paid out. States don't all treat retirement plans the same way, so the tax picture depends on the state. David is an illustrative example only. Made for business owners, physicians, dentists, attorneys and other professionals. CPAs and financial advisors: feel free to share this series with clients who ask about cash balance plans. In this video: 0:00 David's question: why can state income tax matter? 0:34 Two sides: federal and, in a state with an income tax, there can be a state side 0:55 States differ: not all treat retirement plans the same way 1:14 Where an owner lives can matter: a federal law generally limits a state's ability to tax certain payments to someone who's moved away 1:32 The federal limit only goes so far: the next state has rules too 1:49 Who helps: a tax advisor who knows the owner's state 2:12 The answer: not just the federal side, and the picture depends on the state 2:36 Module 3 wrap-up, and what's next Questions answered in this video: Why can state income tax matter when an owner looks at a cash balance plan? Because the federal side isn't the whole tax story. A state with an income tax can add a side of its own. Is the federal tax on the plan's money gone for good? No. On the federal side, it generally waits until benefits are paid out. The tax is delayed, not canceled. Do states treat retirement plan contributions and payouts the same way? They don't all do. A plan can meet the federal rules, and a state can still treat it differently. Does it matter where an owner lives when the money comes out? It can. While an owner lives in a state, that state's rules apply, and the state where the owner lives next has rules too. Does a federal law limit state tax on retirement payments? Generally, for certain payments to someone who's moved away. But the limit only goes so far. The state where the owner lives next has rules too, and a state decides who counts as living there. Who helps with the state side? The actuary and plan administrator work on the plan itself. State tax is a separate job for a tax advisor who knows the owner's state. What could an owner ask a tax advisor? One plain question: how would the owner's state treat a plan like this? The answer would come from that state's rules and the owner's own facts. What's the short answer? The tax picture depends on the state. For David, it would also depend on where he lives when the money comes out. Cash Balance Plans 101 | Module 3: The Money Module 3 playlist:    • Cash Balance Plans 101 | Module 3: The Money   New to the series? Module 1 playlist:    • Cash Balance Plans 101 | Module 1: The Basics   Episode 13: Cash Balance Plan: How Much Can You Actually Contribute?    • Cash Balance Plan: How Much Can You Actual...   Episode 14: Cash Balance Plan: The Tax Deduction Story    • Cash Balance Plan: The Tax Deduction Story   Episode 15: Cash Balance Plan: How the Money Can Grow, Tax-Deferred    • Cash Balance Plan: How the Money Can Grow,...   Episode 16: How a Cash Balance Plan Can Work with a 401(k) and Profit Sharing    • How a Cash Balance Plan Can Work with a 40...   Episode 17: Cash Balance Plan: An Example of a Practice Owner    • Cash Balance Plan: An Example of a Practic...   Episode 18: Cash Balance Plan: Can State Tax Matter? (this video) Module 3 is complete. Module 4 is next. Next: Episode 19, Cash Balance Plan: Why It Needs an Actuary    • Cash Balance Plan: Why It Needs an Actuary   Learn more, or see whether a cash balance plan might be right for your business: https://www.emparion.com/?utm_source=... About Emparion Emparion is a third-party administrator (TPA) that specializes in cash balance plans and defined benefit plans, and we help business owners design and run their plans. Emparion is a TPA, not the investment custodian. We do not hold or invest plan money. Disclosures This video is general education, not tax, legal or investment advice. Any examples and visuals are illustrative only. How a specific plan works depends on its plan document, and tax results depend on your own situation, so talk with your own tax, legal and financial advisors before making decisions. #CashBalancePlan #StateIncomeTax #RetirementPlanning