Are roth ira distributions taxable on the massachusetts state return?

[stoneyjeep]

Absolutely not taxable by MA.  My turbotax does it perfectly, not increasing my MA tax liability.

[GeorgeM777]

​​​​The MA Department of Revenue website states the following regarding Roth IRA distributions for anyone under the age of 59-1/2:

"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.)

However, and to follow-up on your previous post, the MA Department of Revenue also states the following:

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

In your MA section of TurboTax, you should see the following page, or a similar page, which will allow you to enter that portion of your Roth IRA distribution that was previously taxed income.  

@kosmos5344

[kosmos5344]

Hi - this worked for me. Thanks! The above screenshot is what I needed to get to to do indicate on the MA section that I already paid tax. The previous steps provided didn't do the trick. Thanks for your feedback and help!

[Arcticson58]

And still not corrected this year, unfortunately.  Two attempts today working with Support ended with them disconnecting from me.  Not pleased with this.  I am going to try an alternative tax software platform and if it handles this properly, leave TurboTax behind.

[kosmos5344]

@Arcticson58 Make sure you fully go through the federal section first. What I originally found confusing misleading is that A) state taxes are calculated for whatever reason when filling out details in the Federal section and B) some MA tax questions are asked during the Federal section. I also did not find support helpful until @GeorgeM777 screenshot which shows the "Taxable IRA/Keogh Distributions" section in State taxes which is the crucial page you need to fill out to not get taxed on your distribution (assuming you've had your account for 5 years). I called multiple times only to be informed that the original calculation was correct until I did more research online and also consulted a CPA. Finally got the answer I needed in this thread.

[Arcticson58]

Thank you, @kosmos5344 

[dbookbinder]

Jim,

I'm in the same boat -- TurboTax is treating my inherited Roth IRA distribution as taxable income. The holder of the Roth won't change the code to Q, and in a wasted hour with TurboTax, I was told that they're not working on fixing this. The same thing happened in 2019, but I took a smaller distribution and didn't notice it. 

Have you found a workaround? Using the Q designation for the state seems dicey to me, since it's altering a document that's, I assume, been filed with the state government.

- David

[stoneyjeep]

Solutions, there are, for avoiding payment to Massachusetts on normal Roth Disbursements, which are NEVER taxable in the State of Massachusetts.

A) After completing your Fed Return and e filing or mailing just the Federal Return, change code to Q before completing your State of Massachusetts return.  (You will have to mail your State of Massachusetts return, I believe, since Turbo Tax won't let you e file for Massachusetts if you use this methodology for changing to Q after you have completed and e filed the Federal Return.  In this manner Turbo Tax will generate a State of Massachusetts return correctly showing no tax liability for normal withdrawals (disbursements) from a Roth.

B)  If you answer the questions perfectly, and it is a trial an error for some, you won't show liability to the Commonwealth of MA.  A Turbotax "team" took me through it last year, and "Bingo", there was no tax liability for the Roth for Massachusetts.  But it was a terrible exercise.  One Turbo Tax guy was talking me through it on the phone, and another Turbo Tax guy in the background was instructing the two of us how to answer various questions.  I doubt I could do it today unless I spent an hours time.  Fortunately it can be done if you keep going through the Turbo tax questions answering them in different ways.  The A method is easier for me.

One of the problems is the Schedule X for Massachusetts.  Their use of the word disbursement is "faulty".  People reading the page 19-20 rules and filling out the two charts are "absolutely" bound to be confused unless they keep in the back of their minds that "There is no Massachusetts Tax Liability Whatsoever" for taking a "normal" disbursement from your Roth.  The problem on pages 19-20 of the schedule X instructions  is that they are talking about a disbursement from a Regular IRA to Rollover to a Roth.  This was shown to me by a CPA Tax Consultant and once IRS employee.  One can only assume that thousands of folks in the Commonwealth of Massachusetts are unsuspectingly paying taxes on Normal Roth Disbursements.

[dbookbinder]

Interesting that you actually got help from someone at Turbotax. My call to them last night was another wasted, frustrating hour, at the end of which they told me they couldn't do anything for me and eventually sent me a link to refund my purchase price. My brother just told me he had the same issue with H&R Block software and tinkered with some worksheet there to get it to work. Which Turbotax questions are you talking about? There were only four or so questions, as I recall.

My concern about changing the value to Q is that the IRS may frown on tinkering with data that they already have a copy of, and that would be easy to cross-check by computer. 

What a mess. What I'm considering now is essentially doing what you describe, but also generating the correct 1099-R and then submitting the whole thing by paper, rather than electronically. And then waiting a long time for my  refund from 2019, when Turbotax did the whole thing but I didn't notice.

Thanks for your help. If you recall any details of what you did last year, I'd like to hear them.

David

[Rob G1]

I entered my 1099-R for a withdrawal from my Roth IRA. The Roth is 10 years old and the withdrawal was for a value less than my contributions (transfer from my traditional IRA on which I paid taxes). Turbotax 2022 did not add tax for the Federal return but added tax for the state return. I can not see how to eliminate the state tax since the withdrawal is not taxable. How can I correct this ? 

[AmyC]

You are correct that if the Roth is not taxed on the federal, it should not be taxed on the state. What code do you have in box 7 on the 1099-R?

MA begins with the federal income so your IRA is being added back? 

I am not able to duplicate your situation. I entered a Roth in federal with an exception and it is not on federal or state. Please reply with more information.

@Rob G1 

[stoneyjeep]

what most MA residents do for reporting Roth Withdrawls is:

After finishing / printing FED return, they go back into the Turbotax and change the code so that state return shows that you have no liability tax wise for the Roth Withdrawl.

For several years no expert from MA IRS has questioned this procedure we have used on TurboTax

[rliebert18]

I have a Roth IRA from Fidelity.  They always enter T in Box 7 and TurboTax assumes that means the distributions are Massachusetts taxable.  However, it is a Roth which fully meets all the criteria you have listed.  Distributions are not taxed in the Federal return and the original conversion was held for over 5 years before the first distribution and I was well over the 59 1/2 year mark.  How do I override the TurboTax taxability entry?

[Rowley]

Don't put T in for the code. Put in Q.  Same thing happened to me because the financial services clearing house was new and they didn't have the account for more than 5 years.