Massachusetts does not make a distinction between Traditional IRAs and SEP-IRAs in regard to the tax liability amount on distributions. Please see the following and the attachment
- "Massachusetts Reporting IRA & SEP-IREA Distributions" showing how to enter the data and the effect on the MA Form 1 tax forms.
The summary of what follows is that a distribution from any IRA is taxable in MA to the extent that the monies were not taxed at the time of contribution. Similarly to Federal rules, the assumption is made that distributions are first from taxed contributions and then when previous contributions (the "Basis") are exhausted, then the balance is assumed to be not previously taxed and liable for taxation.
Traditional Individual Retirement Account (IRA)
Traditional Individual Retirement Accounts (IRA) are retirement plans you can contribute a maximum annual amount to. For joint filers, each may contribute up to the maximum allowed amount. Earnings accumulate tax-free on IRA contributions but income distributions may be taxable. Unlike Federal taxation, Massachusetts does not allow a deduction for these contributions.
Excluded Distributions from Traditional IRA from your Massachusetts gross income for the year paid:
- Income you earned on the contributions while in the IRA account
- Similarly, for federal purposes, distributions are excluded from gross income to the extent that they represent contributions for which no deduction was allowed due to federal laws pertaining to deductibility of contributions.
- Distributions from traditional and Roth IRAs to qualified charities. This applies to:
- Distributions made on behalf of taxpayers at least 70½ on the distribution date
- Distributions made up to $100,000 per year
Excluded Distributions from SEP-IRA from your Massachusetts gross income for the year paid:
- Contributions your employer made to your SEP (These were previously taxed!)
- Income you earned on the contributions while in the SEP account
- Distributions the SEP made to you, if these distributions equal your Massachusetts previously taxed contributions. Distributions in excess of Massachusetts previously taxed contributions before January 1, 1988 are taxable.
For ALL IRAs, keep a record of all contributions you made that you included in Massachusetts gross income. Records include:
- Statements from banks or other financial institutions verifying contributions and distributions to date, including any rollover sources
- Copies of U.S. Form 1099-R - Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts
- Federal Forms 8606 - Nondeductible IRAs
Simplified Employee Pension (SEP or SEP IRA) plan
Simplified employee pension plans (SEPs) are IRA-type plans employers set up so they can contribute to IRAs on their employees' behalf. These plans let employees contribute more money to their IRAs than allowed under traditional IRA rules.
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