Thanks @DaveF1006 so let me reply to everything you stated (my comments below in italics):
It depends. If you read the opening paragraph in the NJ link I sent, it says The New Jersey Income Tax treatment of Roth IRAs conforms to the federal treatment. = Correct. So if TurboTax isn't taxing and isn't penalizing my withdrawal of initial investment on the Federal Return, NJ should not be either.
Direct contributions to Roth IRAs are not deductible and qualified distributions from Roth IRAs are not includable in New Jersey income. This means that both these conditions need to be met to exclude this from NJ income to conform with the federal treatment. This is how this is interpreted. = Correct. My point is it is qualified since, again, I'm not withdrawing earnings but rather my prinicipal initially invested, which is one of the pro's to having a Roth IRA. You can always take out your prinicipal tax and penalty free. Just not your earnings etc (before 59.5). From Forbes.com for reference: "Once you contribute money to a Roth IRA, you can withdraw your original contributions at any time without paying any sort of tax or penalty. This means there’s almost no reason not to squirrel away money in a Roth."
Since this distribution is non-qualified, then it is taxable under the NJ tax code. I don't mean to argue this point with you but I must follow the language that is written in the code. = No worries. we just don't see eye to eye. I called an accountant and he agrees with me. He believes TurboTax should not tax nor penalize it for NJ if it's not for the Fed tax return.
Worst case, I sadly have to stop using TurboTax, which would be upsetting because I've been using TT for a long time and love it.
