In our test return, we did not see any MA tax applied to our Roth IRA distributions. We suspect the distribution code (box 7 on the 1099-R) may be the reason why your Roth IRA distribution is showing as subject to MA tax.
As a way of background, your Roth IRA distribution will not be subject to MA tax provided the Roth IRA has been held for five years and meets one of the following conditions:
- You were at least 59 and a half years old when it was distributed
- You are disabled
- The distribution is made to a beneficiary or your estate on or after your date of death
- The distribution is paying for a qualified first time homebuyer expense (up to $10,000)
(If a distribution is made before the 5-year holding period expires, or doesn't meet 1 of the 4 above conditions, the distribution is not excluded from Massachusetts gross income. Any earnings on the contributions are included in federal and Massachusetts gross income instead.)
If the above conditions have been met, then your Roth IRA will not be subject to MA tax. What distribution code in box 7 have you entered? In our test return, because we took the position that the Roth IRA was a qualified distribution, we entered code Q in box 7. However, we also ran a test with code T in box 7 and were able to produce a return showing no MA tax was due.
@kosmos5344
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