401K Withdrawal - Double Taxation in MA / NJ State

[szou28]

I did early withdrawal from a 401K pre-tax account. I contributed to 401K when I was working in MA and now I live in NJ as a NJ resident.

I realized that in MA - you need to pay for the money that's sourced from MA even though you are no longer a resident. But NJ also tax on all incomes. In this situation it seems I will be double taxed from both MA and NJ.

I wonder how can I avoid this situation. I know for ordinary W2 income you can claim credit back if you are taxed by another state while you are a resident of NJ. I wonder can we do that with 401K money?

Thanks for help in advance!

[MayaD · Accepted solution]

If you take distributions from retirement plans of any type in your state of permanent residence, you can only be taxed by that particular state.

Your distributions are not considered MA source income and are taxable on NJ return. Don't check on your return that you earned money from another state if you don't have any other income from MA. 

For more information, check Non-Resident Income Tax