From 24/7 Wall St. · David Beren · · 1m 20s
Roth Conversion Timing Saves State Tax Bill
A retiree converted $200,000 to Roth one year before moving to Florida, avoiding a $50k+ state tax bill.
In brief
A retiree converted $200,000 to Roth one year before moving to Florida, avoiding a $50k+ state tax bill. Waiting one year after Roth conversion before moving to Florida saves the entire state tax bill for high-tax states. Originally reported by 24/7 Wall St..
Roth Conversion Timing
A retiree in a high-tax state plans to move to Florida and converts $200,000 from a traditional IRA to a Roth in the current tax year.
State Tax Difference
The state tax bill for a $200,000 conversion in a high-tax state typically runs into five figures, while Florida imposes no individual income tax.
Federal Tax Consistency
The federal tax bill remains the same whether the conversion happens before or after moving to Florida.
Domicile Rules
Domicile is a facts-and-circumstances test: where the taxpayer physically spends their days, primary home, driver’s license, vehicle registration, voter registration, and financial accounts.
Part-Year Resident Trap
A Roth conversion completed in March before a July move is taxed in full by the former state, so the move must be completed before conversion.
Waiting One Year
Waiting one year after conversion before moving to Florida eliminates the state tax bill for a $200,000 conversion in a high-tax state.
Consequence
The state tax bill on a $200,000 conversion sequenced correctly goes to zero, saving the entire state tax bill.
Here's the gist
Waiting one year after Roth conversion before moving to Florida saves the entire state tax bill for high-tax states.
