@dmertz I agree with your logic to this point. However, if the 457(f) participant dies, the spouse receives the payment as of the date of death. It couldn’t be wages for the spouse since she never worked for the employer nor was a plan participant. (For the participant is really isn’t wages either because, in this case, there is no deferred salary in the plan - it is only employer contributions. 457(f) can be used for deferred comp, but not in this case.). And so, if she had established residency in another state as of the date of death/payment, I think she would have a strong argument that KY had no claim to the payout as in-state wages.
Extending that logic, it would seem any participant/beneficiary should be treated the same, ie no KY tax if residency is established elsewhere (even in continuing employment).
