Roth IRA Corrective Distribution (Removal-of-Excess) on New Jersey State Return

bigslimdog · ‎May 1, 2022

Hi,

I posted this as a reply in another forum, but I'm asking here to hopefully get more visibility.

I made an excess contribution to my Roth IRA in January 2021 and submitted a form to my IRA custodian in March 2022 to have it removed. They completed the removal-of-excess / corrective distribution in April 2022. I filed a fed+state extension since the distribution was so close to the deadline. I understand, per the explanations here and here by @DanaB27 that I can account for the earnings from the distribution, which are taxable in 2021, on my federal return by entering a mock 1099-R on my 2021 tax return. I call it "mock" because I am creating a 1099-R in TurboTax prior to receiving the actual (2022) 1099-R from my custodian in Jan 2023. This process seemed to work well for my federal taxes, but when TurboTax carried over this distribution information to my New Jersey state return, things did not go smoothly.

Below is what I posted in the other thread. I am thinking the distribution is not supposed to be taxed in New Jersey at all until I file my 2022 return, but the presence of the 1099-R in the federal return is causing TurboTax to automatically add the information to the New Jersey return. I hope someone can help me.

I am replying to my previous post because I have learned more by studying how TurboTax filled out the New Jersey Git2 Worksheet C (IRA Withdrawals). In TT, the form is named "Pensions Wks". I see what it's doing, but I am still unclear how to proceed.

Line 1a is Value of all IRA's on 12/31/2021. I got this value from my custodian.

Line 1b is Contributions made for the tax year from 1/1/2022 - 4/15/2022. This is blank as I made none.

Line 1c is Value of all IRA's on 12/31/2021 and contributions made for the tax year from 1/1/2022-4/15/2022 (add lines 1a and 1b). For me 1a = 1c.

Line 2a is Total distributions from IRA during the tax year (do not include tax-free rollovers). This shows the amount of my corrective distribution. But critically this distribution was made 4/18/2022.

Line 3 is Total value of IRA(s) (add lines 1c, 2a, and 2b). For me, this is simply 1c+2a. But the distribution from line 2a is already included in the value of the IRA on 12/31/2021 (Line 1a). So the IRA value is artificially inflated by this summing. If the distribution were made in 2021, it would not be include in the 1a value, which seems to be the intent of the worksheet.

My intuition tells me that the correction distribution, which TT carried over from my federal return, was not actually "during the tax year". Yes, it is a 2021 corrective distribution at the federal level, but everything I have seen in the New Jersey tax literature leads me to believe that it is a (non-qualified) 2022 distribution in the New Jersey tax world. In this case, I believe I ought to be reporting no 2021 New Jersey IRA withdrawals, and should instead report it as a 2022 withdrawal next year.

My questions are, (1) is this all correct and (2) how can I fix this on my 2021 state return in TT?

Thank you for any insights.