Hello,
My wife inherited a non-spousal traditional IRA from her mother who passed in 2018, prior to her mother being old enough to take RMD's. The first year of withdrawal was 2019 and the good news is everything was filed properly so my wife can take RMD's over her remaining estimated lifetime. The bad news is depending on the answer I may need to amend NJ 2019.
For New Jersey, traditional IRA's do not allow a deduction on contribution. Accordingly, when you withdraw you only pay on the gains, not the contributed amount. Otherwise you're paying tax twice (in this case, once by her mom on contribution and a second time by my wife on withdrawal). So if the value of the IRA is for example say $100,000 and the contributed amount was $20,000, you would only pay tax to NJ on 80% of the RMD. (I think I got that right).
So after my long winded opening, here's the question... for a New Jersey state return, do you:
1) pay tax on the full amount of the withdrawal (I don't think its this - and this is what I did on my '19 return which may require amendment)
2) pay no tax on withdrawal, similar to if you inherited stocks and you get a step up in basis
3) continue to pay tax based on contributed % - as per the example above, 80% of the RMD would be taxable to NJ
If it is #3, this amount was rolled over by her mother at some point into this account, so I have no idea what the contributed basis would have been and I doubt there's a way to reasonably find it. Should I just take an educated guess in this case? Say 35% or so was contributed?
ADDED AFTER ORIGINAL POSTING: Doing additional internet searches, it seems that #3 is the answer. Which then brings me back to how you determine contributed basis when you don't have the information? Do you just be conservative and take 10%?
Appreciate any thoughts. Thank you.
