Yes, you are correct. In New Jersey, contributions to an IRA are subject to state income tax in the year they are made. This means that when you make a withdrawal from the IRA, the amount you contributed is not taxable again, since the contributions were already taxed at the time they were made.
However, any earnings or growth on those contributions that were not previously taxed will be subject to New Jersey state income tax when withdrawn. This could explain why TurboTax is showing a refund for the state taxes withheld, as the contributions themselves are not taxable again, but the earnings are.
NJ.gov
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