The federal rule
Investment advisory services described on this page are offered through Avinci Wealth Management, Inc., a Registered Investment Adviser registered in California, Arizona, Illinois, Texas, and Nevada. This page is general information for educational purposes and is not tax, legal, or individualized investment advice. Avinci does not prepare tax returns or practice law. Confirm your own position with your CPA and attorney.
California taxes its residents on all of their income, wherever it comes from. For retirement income, that reach generally ends when residency does. A federal statute, 4 U.S.C. section 114, enacted in 1996, generally prohibits a state from taxing the retirement income of a person who is not a resident or domiciliary of that state.
The statute covers most of what retirees draw on: distributions from 401(k), 403(b) and governmental 457 plans, traditional and Roth IRAs including SEP IRAs, and pensions from qualified and governmental plans. Certain nonqualified deferred compensation is also covered, but generally only when it is paid in substantially equal periodic payments over the recipient's life or a period of at least ten years, or under certain excess benefit arrangements. California's own guidance for nonresidents reflects the same rule.
Put precisely: federal law generally prevents California from taxing certain qualifying retirement income received by individuals who are no longer California residents. Other types of income may remain subject to California taxation depending on their source and the applicable rules.
The federal protection covers qualifying retirement income. It does not settle whether the move happened.
What California can still reach
The protection applies to qualifying retirement income. It does not make a former resident a stranger to California tax. Income with a California source generally stays taxable here regardless of where the recipient lives.
| Income | After a genuine change of residency | Note |
|---|---|---|
| IRA, 401(k), 403(b) and 457 distributions | Generally not taxed by California | Covered by 4 U.S.C. section 114 |
| Pensions from qualified or governmental plans | Generally not taxed by California | Includes CalPERS and CalSTRS benefits |
| Social Security | Not taxed by California | California excludes it for residents and nonresidents alike |
| Nonqualified deferred compensation | Depends on how it is paid | Lump sums and short payment schedules may fall outside the federal protection |
| Rent from California real estate | Generally taxed by California | California-source income, reported on a nonresident return |
| Gain on selling California real estate | Generally taxed by California | Withholding may apply at closing |
| Income from a California business | Generally taxed by California, to the extent sourced here | Treatment depends on whether the interest is corporate stock, a partnership interest, business assets or a deemed asset sale |
A general summary, not a determination for any individual. Your CPA can confirm how each item is treated in your situation.
How residency is decided
For California tax purposes, a resident is someone in the state for other than a temporary or transitory purpose, or someone domiciled in California who is outside it for a temporary or transitory purpose. Domicile is the place a person intends to return to and treats as their permanent home. A person has only one domicile, but can have homes in more than one state.
When residency is examined, the Franchise Tax Board looks at the overall pattern of a person's connections rather than any single fact. Its published residency guidance, FTB Publication 1031, describes the kinds of ties it considers, including:
- Where the principal home is, and whether a California home was kept, sold or rented out
- Where a spouse and dependents live
- Where the person is registered to vote, holds a driver's license, and registers vehicles
- Where doctors, accountants and other professional relationships are
- Where bank accounts, club memberships and social ties are maintained
- How much time is spent in California compared with elsewhere
Time matters in a specific way. A person who spends more than nine months of a tax year in California is presumed to be a resident. This presumption is rebuttable, and spending fewer than nine months in California does not automatically establish nonresident status. The Franchise Tax Board considers the taxpayer's overall circumstances, so a move that changes the mailing address but leaves the home, the doctors and the club memberships in place is the pattern most likely to be questioned.
Residency is a fact-specific determination. This is a general description, not legal or tax advice. Confirm your own situation with your CPA and, where appropriate, an attorney.
The year of the move
In the year a person leaves, California generally treats them as a part-year resident. Income received while a resident is California income; qualifying retirement income received after residency ends generally is not. The date residency changed therefore carries real weight, and it is a date that has to be supportable from the facts rather than chosen afterward.
Items that build up over time can be more complicated. California has rules for income that accrued while a person was a resident but is received afterward, and how they apply depends on the type of income. Gains on stock compensation and business interests are the most common examples, covered in California tax in the year you sell a business or stock.
Timing a conversion or sale around a move
The timing of a Roth conversion, investment sale, or retirement distribution may affect California tax treatment. However, the result also depends on the individual's residency status, the source and character of the income, and applicable federal and state tax rules. These factors should be evaluated with a qualified tax professional before completing a significant transaction.
With that qualification in mind, the general pattern is that residency on the date of a transaction matters. A Roth conversion completed while still a California resident is generally California income. One completed after a genuine change of residency generally is not, though the destination state's own treatment then applies. The mechanics of conversions are covered in Roth conversion rules.
Similar reasoning applies to selling appreciated investments held in taxable accounts, and to the timing of large IRA withdrawals, subject to the same dependence on source and character. None of this argues for moving to save tax, or for deferring decisions until after a move that may not happen. It argues for knowing, before the move, which transactions belong on which side of it and which professional should be deciding that.
The destination matters as much as the departure. States differ in whether and how they tax retirement income, conversions and capital gains, and a state with no income tax may still have higher property or sales taxes. A comparison that looks only at California's side is incomplete.
What else a move changes
A move changes more than tax, and the rest of it is easy to leave until after the decision has been made.
- Estate documents. Trusts, wills and powers of attorney drafted under California law, including community property provisions, should be reviewed by an attorney in the new state.
- Health coverage. Medicare Advantage and supplemental plans have service areas, and doctors and networks may change with the address.
- Property tax. Selling a long-held California home gives up the assessed value protected under Proposition 13, which does not follow a move out of state.
- Insurance and registrations. Homeowner's, auto and umbrella coverage, vehicle registration and voter registration all follow the new residence, and they become part of the residency record as well.
How Avinci approaches it
Avinci Wealth Management is a Registered Investment Adviser registered in California, Arizona, Illinois, Texas, and Nevada, firm CRD #327780, headquartered at 23929 Valencia Blvd, Suite 404 in Santa Clarita, with additional offices in Beverly Hills and Woodland Hills. When providing investment advisory services, Avinci Wealth Management is subject to its fiduciary obligations under applicable investment adviser law.
Santa Monica clients typically meet with Avinci at our Beverly Hills office on Wilshire Boulevard or by secure video. The work is the same either way: a financial advisor and financial planner coordinating investments, tax-aware withdrawals, retirement income, and estate planning under one Retirement Blueprint, rather than as separate engagements with separate providers.
Under the Retirement Blueprint, a possible move is modeled as a scenario alongside staying: which income would remain California-source, which transactions fall on which side of the move date, and how the destination state's rules would change the plan. Residency determinations and estate documents are handled by the client's CPA and attorney; Avinci does not advise on or determine residency. Clients considering a move can also ask how the advisory relationship would continue in their destination state. Founder Lindahl Lucas is involved in overseeing the development of Retirement Blueprint planning.
Avinci receives advisory fees for investment advisory services. Separately, insurance and annuity products may be offered through our affiliated insurance agency, Lucas Insurance Services, which may receive commissions from issuing insurance companies. This compensation arrangement creates a conflict of interest and is disclosed in our Form ADV.
Important disclosures. This material is for informational purposes only and should not be construed as individualized investment, tax, or legal advice, or as a recommendation to buy or sell any security or insurance product. Consult your CPA or attorney before acting on anything described here.
Registration. Investment advisory services are offered through Avinci Wealth Management, Inc., a Registered Investment Adviser, firm CRD #327780, registered in California, Arizona, Illinois, Texas, and Nevada. Registration as an investment adviser does not imply a certain level of skill or training. Our Form ADV Part 2A brochure describes our services, fees, and conflicts of interest, and is available on request and through our IAPD record. The firm can also be verified through the SEC adviser search and, where applicable, FINRA BrokerCheck.
Tax and legal. Federal and California tax rules described here are general summaries, reflect published law as of the date of this article, and are subject to change. Residency is determined from the facts of each case, and the treatment of any particular item of income depends on its source and character. Avinci Wealth Management, Inc. does not prepare tax returns, provide tax advice, practice law, or advise on or determine residency.
Projections. Financial projections and retirement models described here are hypothetical and illustrative in nature, are based on assumptions provided by the client and on market data, and do not guarantee future results.
Insurance and risk. Insurance and annuity products are offered through our affiliate, Lucas Insurance Services, which may receive commissions from issuing insurance companies on products it places. This compensation arrangement creates a conflict of interest and is disclosed in our Form ADV. Guarantees associated with annuity and insurance contracts are subject to the claims-paying ability of the issuing carrier. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not indicative of future results.