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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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Experience:  15years with H & R Block. Divisional leader, Instructor
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My wife and I just moved to North Carolina from Texas two months

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My wife and I just moved to North Carolina from Texas two months ago. We have a 403b retirement account from her job in Texas, where all of the money was earned. We did not roll the account over to her new job in North Carolina. We need to take money from our retirement to get rid of our old house in Texas and find a new house in North Carolina. If we make an early withdrawal from that account, will we have to pay North Carolina state income taxes on the funds we withdraw? If so, is it taxed twice (10% and then added to income as additional income for income taxes), or simply added to the money we've earned in North Carolina so far? It seems terribly unfair to have to pay state income taxes on this money. (Texas has no state income tax.)
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Hello and thank you for using Just Answer,

Your situation is not uncommon these days. Because you moved to North Carolina you will be taxed in North Carolina on all your income from the day you moved onward. So, if you take the money out of the retirement account you will be required to include it on your NC return. You will be taxed on the federal level and the state level for the distribution. The 10% that you mentioned will be a penalty that is added on your federal return if your wife is not 55 when she takes out the money. The penalty is usually based on 59 1/2 but as she has ended her employment with the other company she can use the exception of being 55 and no longer working for the company. The form 5329 will be needed with your return to claim the exception on the penalty for federal. NC does not have a penalty.
It does seem unfair that you would need to pay NC on the amount of retirement that was earned in Texas but unfortunately it is the fact that you would be a NC resident that determines who taxes you on income.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7462
Experience: 15years with H & R Block. Divisional leader, Instructor
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