Let me back up to clarify (again, there are several flavors of 457(f) but this is how ours works):
Each year the employer makes a contribution to the plan in accordance with plan documents, in my name. That money is invested similar to a 401(k) among several possible funds in our case. The total of contributions and growth cliff vests at age 62, or if terminated without cause, or if I die or am disabled. Otherwise it is forfeited, even if I retire the day before my 62nd birthday. The balance has to be paid out shortly after the 62nd birthday.
The IRS is clear that the payout in this case is all ordinary, and treated like wages on the W2. So the federal is set. If I could avoid that, I would!
The state is the fuzzier part, because there doesn’t seem to be much/anything published on this specifically. Basically the question is if I reside in one state (TN) and work in another (KY) and it is the KY employer who pays the 457(f) balance to me at age 62, which state can tax it (or how do I defend excluding it from KY wages)?
