I have a few IRAs. I’ve only ever taken distributions from one - a small inherited IRA consisting virtually entirely of contributions. TurboTax calculates only a very small percentage of this (2023) year’s single withdrawal is excludable (from NJ State tax) even though virtually all dollars of this withdrawal were previously taxed by the State.
When I do the calculation for this IRA by hand using "NJ 1040 2023 Worksheet C - IRA withdrawals", the (appreciable) correct maximum excludable amount results.
TT asks the total value of all IRAs on 12/31/23, and then lumps all IRAs (including my other IRAs with larger balances consisting of a high percentage of earnings) together to do a single calculation. But this yields a much, much lower excludable amount, and thus a higher NJ State tax bill for 2023.
The NJ1040 2023 instructions say the taxpayer can do what TT did, if you have multiple IRA distributions and if it’s more convenient to lump them all together to do the Worksheet calculations one time.
But that’s not the case for me. I had only 1 IRA distribution, and lumping all IRAs together for the worksheet calculation produces a higher tax bill this year.
I’m not asking how to work around this. But some TT users in a similar situation may not even realize TT’s calculation is hurting them this year, or may not see the workaround (as TT does not explicitly show it to them).
My question is: WHY is TT doing this? Is it because it was more convenient and cost-effective for TT, involving less developer time and effort?
And how does this square with TT’s “guaranteed to get the biggest refund” claim?
