Are roth ira distributions taxable on the massachusetts state return?

[jimphd]

Not correct ThomasM125.  The earnings on a Roth account are not taxable in Massachusetts -- neither when earned nor when withdrawn -- provided the account is at least 5 years old and the taxpayer is at least 59 1/2 years old.

From the state website ( https://www.mass.gov/service-details/view-non-government-pensions#:~:text=Roth%20Individual%20Retire.... ) "

Excluded from your Massachusetts gross income for the year paid:

• Income you earned on the contributions while in the Roth IRA account
• Distributions from a Roth IRA account made to you 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:
  • 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.)

[jimphd]

You are correct in your suspicion afgolick.   MA does not tax any Roth distribution provided you are at least 59.5 years old and the account is at least 5 years old.    Turbotax has a bug.   Seems like the best solution is to override the distribution amount on schedule X of the state return and reduce it by the amount of the Roth distribution (provided the age requirements are met).   see  https://www.mass.gov/service-details/view-non-government-pensions#:~:text=Roth%20Individual%20Retire....

[Rowley]

This was very helpful. My 1099-R incorrectly had a T code and therefore is was treated as taxable on our MA return.  I changed it to Q to correctly characterize the status of our Roth distribution and that fixed the problem.

[kevin02653]

agree there must be a bug in TurboTax as I've tried everything and cannot get my RothIRA distribution to not be treated in Massachusetts (Sch. X) as Taxable  very annoying

[jtavares2]

I am in the same boat, here. Code T is showing up as taxable on the MA form, but not the federal form. Trying to get help from TurboTax support.

[jtavares2]

TurboTax support had me manually override Line A on MA Schedule X with the correct value. A little unsatisfying as this is supposed to be a calculated value. I would be concerned that it could snap back to the incorrect value if I were to make any changes to the Federal return (especially in the 1099s).

[Rowley]

I edited the 1099-R for the Roth IRA to change the code from T to Q and it removed the distribution from Schedule X, so this technique worked for me.  As a back story, the financial service provider for the Roth IRA was changed less than 5 years ago, so the FSP automatically puts in the T code in box 7, even though our Roth IRA is over 20 years old.  I spoke both with Roth IRA custodian and they said glibly that it was the FSP's problem and they couldn't do anything about it.  I don't know if this would work, but you could try to edit the Schedule X form to remove the amount from the Roth IRA.

[Davis5]

I see this probable error in the way TurboTax handles Roth IRA distributions for Massachusetts as well. This applies to Tax Year 2020 too, so it apparently still hasn’t been corrected. 

[stoneyjeep]

A) I think Turbo Tax must have fixed anything that was wrong from the time I raised this issue last year or the year before.  At least this year, I had no problem with MA not taxing a couple of ROTHs.  The red "tax owed" number did not go up when I entered my withdrawals from the ROTHs.  

B) Trivial, but I will note in case someone has the same problem.  A TurboTax tax person told me that Massachusetts did tax withdrawals from ROTHs.  She later emailed me to correct her comment.  

[bcommscituate]

Ran into that problem last year. Thanks for the clarification. Do you know if TurboTax has fixed the problem? 

[kosmos5344]

This is still a problem for me today as well. Really not sure what to do about it. I've appropriately put in my Roth basis (which is far higher than the amount I distributed), have had the account for at least 5 years, but TurboTax still applies a 5% MA tax. Starting to look into other software solutions as a result. It's too bad since TurboTax is pretty solid otherwise.

[GeorgeM777]

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

[kosmos5344]

Hi - the distribution code on my 1099R is J. I called T Rowe about this since my basis is much higher than my distribution but they claimed that they mark J for anyone under the age of 59.5 (I am 33) regardless of circumstance. I have held the account for about 7 years as well. 

I'm really surprised by this double tax since I have been under the belief and thought it was common knowledge that you can effectively take out any money that you contribute to a Roth IRA so long as you don't eat into any earnings. I spoke with a local MA CPA who confirmed this point.

I have bought the software for TurboTax and will attempt to manually put in the basis on the 8606 form myself to see if this makes a difference but I'm assuming it likely won't change anything.

[JohnB5677]

No, the distribution should not be taxed by either the Federal or Massachusetts.

If you continue through the interview, you will come back to the initial summary screen, but don't stop there.

1. Did either of you take a disaster distribution?
2. Owned the ROTH IRA for Five Years = Yes
3. Were any ROTH IRAs Open = Yes
4. Withdraw from your ROTH IRA Before 2021 = NO
5. Enter Prior Year ROTH IRA Contributions
6. This is where you carry your total ROTH basis

@kosmos5344  Because you said you purchased the TurboTax software, I expect you have the Desktop CD version.

[kosmos5344]

Hi John,

I purchased the downloadable software onto my Mac Mini. FYI I did exactly as you say below and nothing changed. I took an $8k distribution last year even though I have $25k in Roth basis going back to 2015. My MA Tax Due adds $400 (5% tax on $8k) after I go through adding that 1099-R even though I already paid that tax. I can also see on Form 8606 that line 22 "basis in Roth IRA contributions" appropriately shows $25,180 but I'm still being taxed by the software. It just doesn't make sense.