Are roth ira distributions taxable on the massachusetts state return?

[JohnB5677]

Massachusetts does not tax ROTH IRA distributions provided certain conditions are met.  They basically follow the Federal standards. 

However,  Massachusetts does not allow a deduction for contributions to a traditional IRA.  You will have to keep track of your basis to get an exclusion when you take a distribution.  Massachusetts does NOT follow the Federal guidelines in this case.

[shchamberlin1]

Just to clarify. Income earned on contributions to the Roth fund will not be taxed by Massachusetts when distributed . Is that correct?

[GiseleD]

Usually, yes. There are some exceptions, though. According to Mass.gov, here are the details:

Excluded from your Massachusetts gross income for the year paid:

• Income you earned on the contributions while in the Roth IRA account
• Distributions the Roth IRA account made to you, if they are excluded from federal gross income. A distribution is excludable if the IRA is held for 5 years and it meets 1 of the following conditions: 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.
  • 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)
• Distributions from traditional and Roth IRAs to qualified charities. This applies to:
  • Distributions made on behalf of taxpayers at least 70 and a half on the distribution date in 2014
  • Distributions made up to $100,000 per year

To see if you're taxed on your Roth IRA distributions:

• Residents - Complete the Schedule X, Line 2 Worksheet - Taxable IRA/Keogh Plan and Roth IRA Distributions.
• Part-year residents taxed on IRA distributions they received as a Massachusetts resident - Complete Schedule X, Line 2 Worksheet - Taxable IRA/Keogh Plan and Roth IRA Distributions.
• Nonresidents - You're not taxed on IRA distributions.

To prevent double taxation, Massachusetts allows a tax deduction for IRA distributions up to the total amount of already-taxed contributions.

@shchamberlin1

[cpatmcc]

Hello,

I am completing the state portion of my return (MA) and I need help filling out this question, and the three additional fields:

"Enter the portion, if any, of distributions from IRA/Keogh plans, qualified charitable IRA and Roth IRA conversion distributions for Collin that were previously taxed by Massachusetts and the total amount of distributions received in previous years. Also, verify any qualified charitable IRA distributions in 2019 included in the total."

1. Total IRA/Keogh, qualified charitable IRA and Roth IRA conversion distributions during 2019:

  -I know the answer to this question, no help needed.

2. Total contributions previously taxed by MA:  

  -What total contributions? For 2019? Total contributions to a Roth, since the beginning of owning a Roth? Total contributions to a Traditional IRA, since the beginning of owning a Traditional IRA? Total contributions to both, since the beginning of owning both? Please help me understand what year(s) it is asking? Please know, that all money I have every contributed to a Traditional and/or Roth has always been post-tax money. 

3. Total distributions received in previous years:

  -There was only one year (2016) in which I contributed excess money to my Roth when I wasn't allowed to (by accident). I removed those excess funds in 2018. Should this be the only "distribution received in previous years?" Other than that amount, I have never removed funds. Please advise. It is confusing me because it says "distributions received." Every year, I get a 1099-R from my IRA stating the distributions. I do a Backdoor Roth conversion, so these distributions are simply money moving from my Traditional to Roth. I'm just not sure what "distributions received" means. I don't actually receive those funds, they are converted. 

Please advise.

Thank you,

Collin 

[DianeC958]

2) Yes the amount the program is looking for is all of your contributions since you opened the account for Roth IRA and Traditional IRA.  If all of the money has been post tax money then it is not taxable when you take it out.

3) If the only distributions you have were rolling money from your IRA to a Roth IRA then they are not distributions received since you moved them from one retirement plan to another retirement plan.

Link to Massachusetts View of Non-Government Pensions

[sweadnerk]

I suspect  that this answer and @DianeC958 below are not quite correct.  Line A on schedule X is for taxable distributions, not Roth distributions (unless your Roth distribution is taxable because you haven't waited 5 years or you are under 59 1/2; see the federal rules).  The form in Turbotax is there to help you not pay MA taxes on contributions you made that MA taxed when you made them to traditional IRAs.  The taxable distributions, as the MA instructions booklet spell spells out on p. 20, are  IRA's, Keoghs, and Roth *conversion* distributions, which means the distribution from your Traditional IRA at the moment you converted it to a Roth.  The program inserts regular Roth distributions on line A if they are coded T (exception applies) instead of Q (qualified), apparently for the benefit of people who made an early Roth withdrawal without understanding the rules.   In that case, you would add up all your after-tax contributions to your Roth and enter that number, so you end up paying taxes only on the Roth account's gains.  This is what they mean when they say you can always withdraw your original contributions at any time, but the 5 year/59.5 rules apply to the gains.  In my case this particular Roth account is less than 5 years old, but my original Roth is 15 years old, so my distribution was qualified even though the custodian didn't know that.  I could figure out two ways to fix the problem of erroneously reporting it on schedule X.  1) Go back to the Federal 1099-R entry (after filing Fed taxes correctly) and changing the T to a Q so that the distribution no longer appears on MA schedule X, or 2) leave it on schedule X and type in the entire sum as already taxed, which seems lame.  Turbotax could improve this.  

[sweadnerk]

I apologize, I didn't realize my post would appear at the bottom.  The answer I thought was not quite right, @GiseleD

said 

"To see if you're taxed on your Roth IRA distributions:

• Residents - Complete the Schedule X, Line 2 Worksheet - Taxable IRA/Keogh Plan and Roth IRA Distributions." 

should say Roth *conversion* distributions.  

[Andrew_S]

@sweadnerk  thank you for the explanation you gave on the T vs Q roth coding - My inherited Roth was coded T on the 1099.

The program inserts regular Roth distributions on line A if they are coded T (exception applies) instead of Q (qualified).....I could figure out two ways to fix the problem of erroneously reporting it on schedule X.  1) Go back to the Federal 1099-R entry (after filing Fed taxes correctly) and changing the T to a Q so that the distribution no longer appears on MA schedule X, or 2) leave it on schedule X and type in the entire sum as already taxed, which seems lame.  Turbotax could improve this. 

In my case the Roth is an inherited Roth and meets all the time requirements (so was not taxed on my Federal) BUT the Roth was created and funded in NY state not MA.  So with this difference my questions are:

1) Should MA state honor the Roth even through the state tax amount was collected by NY?

2) Can I use the 2nd option you listed above and enter the sum that was already taxed in NY state into this line "Total contributions previously taxed by MA" assuming it means the amount previously taxed by ANY state?  I don't think they should be double state taxing this, right?

[AmyC]

@Andrew_S

1. yes

2.yes. double taxing the income is not allowed.

[afgolick]

I note the following, because I do not want folks to make the mistake of over-paying their taxes in Massachusetts..

On Intuit's own site it indicates that Massachusetts does not tax ROTH disbursements.  But when I input from a 1099 for 2019 a ROTH disbursement, the TurboTax software increases my MA tax liability. 

I am told by MA IRS, and a very experienced CPA that a ROTH disbursement under normal circumstances is NOT taxed by Massachusetts.  As noted below, Massachusetts follows Federal guidelines.  

The Intuit Tax specialist, a CPA, indicated to me that she believed that Massachusetts DOES tax ROTH disbursements, and that therefore the TurboTax software is correct.  

I have been wrong on occasion, but since Massachusetts says they do not tax Roth Disbursements under normal circumstances, I am guessing there is a small glitch for for the software.  

[aborges]

If you are under 59 1/2 and take a distribution from your Roth IRA - what amount is taxable on the Massachusetts tax return?

Is it the same as federal    (gross distribution less contributions - excess taxable (assuming held 5 years plus)

or is it the entire gross distribution because you are under 59 1/2.

the MA website is not clear to me.

Thanks for your help.

[ThomasM125]

Since the ROTH IRA contribution is not tax deductible in Massachusetts or on your federal tax return, the distribution is not taxable to the extent of your contribution. So, the income you earned would be taxable, but not the contribution itself.

[jimphd]

I agree.  This is a Turbotax bug.   The program knows enough not to tax a Roth distribution on the Federal but erroneously taxes it on the state, if there is a code T in box 7.    Such distributions are not taxable at the state level if you are over 59 and the account has been open at least 5 years.    Code T just means the custodian is doesn't know if you meet those criteria.   Code T does not mean you fail those criteria.  So, Turbotax should ask additional questions to determine if you do meet those criteria and, not tax you at both state and Federal levels if you meet them.   

I have brought this to the attention of Intuit and am waiting for a response.    Until they fix the program, it seems like the choices are to either (a) change that code manually to Q after filing your Federal and before filing your state or (b) do some kind of manual override on Sch X of the state.

[jimphd]

Not correct DianeC958  -- you don't include contributions to a Roth.   Basis in Roth is irrelevant because (a) all contributions to a Roth are post-tax money and (b) all withdrawals from a Roth of both contributions and investment gains are not taxable as long as you wait until you are past age 59 and the account has been open at least 5 years.   The problem is a program bug that incorrectly treats Roth withdrawals as taxable on the state if the custodian has entered code T on box 7 of the 1099-R, rather than Q.

Entering past contributions to the Roth would not fix the problem, because Turbotax would still tax you at the state level on your earnings in the Roth when withdrawn, contrary to Massachusetts tax law.