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Level 1

Can I exclude dividends from state taxable income from investments in direct US government obligations within an IRA?

I am referring to a distribution taken from the IRA which includes us government obligation dividends.

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Level 19

Can I exclude dividends from state taxable income from investments in direct US government obligations within an IRA?

Sorry, what you are invested in inside the IRA has no bearing on your distribution and whether it is state taxable or not.

Your IRA could contain all tax-exempt bonds from your own state, and the distribution wouldn't be exempt form taxation in your home state

.........whereas tax-exempt interest from the same bonds in an standard taxable brokerage account would not  be taxed by your state.

4 Replies
Level 19

Can I exclude dividends from state taxable income from investments in direct US government obligations within an IRA?

Sorry, what you are invested in inside the IRA has no bearing on your distribution and whether it is state taxable or not.

Your IRA could contain all tax-exempt bonds from your own state, and the distribution wouldn't be exempt form taxation in your home state

.........whereas tax-exempt interest from the same bonds in an standard taxable brokerage account would not  be taxed by your state.

Level 1

Can I exclude dividends from state taxable income from investments in direct US government obligations within an IRA?

It really depends on your state!? E.g. In NJ, according to GIT-2 IRA Withdrawals: "If the interest received by the taxpayer as part of an IRA distribution is from exempt obligations that are directly owned by the taxpayer in the IRA plan, the interest is exempt from New Jersey Income Tax. Likewise, if the IRA is part of a New Jersey “Qualified Investment Fund,” the portion of the distribution from the IRA that represents interest or gains from the qualified exempt obligations held by the fund is exempt. However, the portion of a distribution that comes from taxable investments held by the fund is taxable. If the IRA is part of a mutual fund that is not a Qualified Investment Fund, the distributions paid by the mutual fund are exempt only to the extent the distributions are from interest on federal obligations."
*The real question is how to report this info in TurboTax? and keep a running tally of this each year you take RMD? If anyone knows, then please post.
Level 19

Can I exclude dividends from state taxable income from investments in direct US government obligations within an IRA?

<a rel="nofollow" target="_blank" href="http://www.state.nj.us/treasury/taxation/pdf/pubs/tgi-ee/git2.pdf">http://www.state.nj.us/treasury/t...>

NJ is creating a tax nightmare for it's residents.........Have no idea, at this point, if the TTX NJ software can handle it

.....how in the world would a NJ resident keep track of what sub-portion of their IRA RMD, is from US or NJ-bonds and update their own files properly every year.  Only 1-out-of 1000 could even figure out how to keep track....unless they carefully kept the US/NJ bonds in an entirely separate IRA account.  I suspect that TXT may not be able to support this.

IF the user is lucky, the new NJ pension exclusion will cover it all and keeping track will be unnecessary.
Level 1

Can I exclude dividends from state taxable income from investments in direct US government obligations within an IRA?

No, distributions are considered to all be the same kind of money and are taxed as one distribution regardless of the source of the cash that was generated to pay the distribution.