The New Jersey Income Tax treatment of Roth IRAs conforms to the federal treatment, and are not taxable, provided the distributions are qualified distributions.
A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.
It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and
The payment or distribution is:
Made on or after the date you reach age 59½,
Made because you are disabled (defined earlier),
Made to a beneficiary or to your estate after your death.
IRS Publication - IRA Distributions
Thank you for your answer and confirming my understanding and the results of my research. However, it does not appear that the NJ tax program handles it that way. Specifically, an inherited Roth IRA distribution in 2019 was entered using the Step-by-Step portion of the Federal TurboTax program, including going through all of the associated screens. The result was that the Roth IRA Distribution (correctly) was not shown as income in the Federal 1040, BUT it was shown as income for taxes purposes on the NJ 1040 and was taxed for NJ purposes. Yes, the Roth IRA was more than five years old and met the tax-free treatment requirements. I even went through the step of deleting the subject 1099-R and reentering it, with the same results. It appears that there may be an issue with how the NJ tax program treats the inherited Roth distribution.
NJ will claim as taxable any Roth with Code J or T in Box 7. When you get to the page in the NJ return that tells you its taxable. Hit Continue. If it is the first year of withdrawal you get this pop out. Any Contributions you made to the Roth were already taxed.
I do not believe this input screen applies to a Roth IRA. By definition, all contributions to a Roth are post-tax and an entry screen for post-tax contributions for Roths would be redundant. Please note that this is an Inherited Roth IRA, and this input screen, which is intended for post-tax contributions to non-Roth IRAs does not apply. Additionally, if one were to try to use this screen as proposed, this is an inherited Roth IRA, and, thus, the post tax contributions would have been made by the deceased, not the recipient. Therefore, the input for the recipient still would be zero and not resolve the issue.
Once the Roth IRA becomes inherited, all the distributions are qualified distributions.
Don't file a NJ tax return that shows tax on that money.
Thanks, but I don't think that is the answer. My understanding is that NJ receives 1099-R's for all distributions and matches the 1099-R's with the payee's NJ tax return. Not reporting the Roth IRA Distribution on the return would be flagged and result in questions and, perhaps, an audit from NJ.
The tax treatment for inherited Roth IRA in New Jersey is similar to that of the federal treatment and are not taxable, provided they are qualified distributions.
As long as the distribution is made:
1) After the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit.
2) The distribution is :
a) Made on or after the date you reached age 591/2
b) Made because you are disabled
c) Made to a beneficiary or to your estate after your death.
Sorry I didn't try to propose an answer to the TurboTax problem because I don't know your 1099-R.
I meant to say that the distribution is not taxable, so your return Line 20a should be zero.
If it is not zero, it is showing taxable, don't file until you figure how to correct that,
OR
override it and mail in your state tax return.
Line 20b will show the amount and Line 20a is zero.
Sometimes the custodian sends an incorrect 1099-R, in which case, your tax return will show the wrong result.
You are absolutely right. In this particular case, the Federal taxes portion of TurboTax handled the 1099-R for this Roth IRA correctly (that is, the distribution did not result in additional taxes). However, the NJ taxes portion seems considered it as a traditional IRA distribution and additional taxes were calculated. In case I had miss-entered the 1099-R, I also deleted and reentered it several times, with the same incorrect results. This leads me to believe that there is a glitch in the NJ Taxes portion of the program.
What is(are) the distribution code(s) box 7 ?
Does it have an "X" in the "taxable amount not determined" box ?
Box 2a should be zero.
Yes, I confirm that it meets all of the requirements for a qualified Inherited Roth IRA distribution and I am aware that NJ follows the Federal rules and treatment for it. Also, please note that TurboTax calculates the Federal tax for this distribution correctly as $0 (there is no change in the tax whether the distribution is entered or not. As I said in an earlier post, I added and deleted the 1099-R for this distribution several times to look for changes in the calculated tax.). However, the tax calculated in the NJ State program does show a difference when the distribution is added. Again, it appears that there is a glitch in the software for the NJ State taxes.
As long as the child lives with you for at least half the year, the child is considered living with you for the whole year.
Now I am getting frustrated. What are you talking about. Your answer has NOTHING to do with my original question and the discussion link.
@Reggieng You are correct that this would be considered a qualified distribution. Per the NJ Division of Taxation, A qualified distribution from a Roth IRA is excludable from income and should not be reported anywhere on the New Jersey tax return.
Entering this in the Federal area should allow your state return to recognize this, however, it sounds like that is not the case. You may need to contact TurboTax Support for additional assistance.
What is the TurboTax phone number
I’m having this exact same problem with my 2021 tax filing for New Jersey. Did anyone figure out how to make TurboTax consider it non taxable for NJ? My federal is fine.
In connection with entering the Roth distribution in the Federal Section under Wages & Income, did you see the screen below, or a similar screen, in which you could designate the distribution as non-taxable for NJ. The screenshot below was taken from our test return, and the distribution amount of $10,000 was not included in our NJ taxable income.
In your follow-up post, let us know what TurboTax application you are using, e.g. TurboTax Deluxe, TurboTax Premier, and which version, e.g. online or cd/download.
Thanks for getting back to me so quickly George. I am using the Premier on-line version on a PC. I saw nothing like that at all. I did get a question "where is your distribution from" and selected "none of the above", but when it gets to the NJ state form the explanation seems to imply that I selected "general" and need to select "none of the above" for TT to use the same federal (non-taxable) designation. I've gone back and selected "none of the above" multiple times, deleted my state info to reload it, etc. and it never works. I'm trying to get the broker to change the 1099-R box 7 to "Q", but not sure if they will/can. It is qualified (she passed in 2012 and opened it about 7 years before that). I know I can file a paper form with the correct info but would rather not have to.
Have you tried Deleting/Re-Entering the 1099-R in your Federal return to see if the NJ question pops up as shown by @GeorgeM777 above?
There was a NJ Update today.
Since you are using TurboTax Online, you may need to close the program, clear Cache/Cookies to get rid of any info being 'stuck' and re-open TurboTax.
Click this link for info on How to Clear Cache and How to Clear Cookies.
Thanks Marilyn. I just cleared the cache/cookies, deleted/re-entered the 1099-R, and this time did have the chance to say that the entire distribution was not taxable in NJ. There were also many more questions about total IRA values, taxed contributions, etc. that were not there before. I'm not sure how they relate to an inherited Roth yet - I need to look at in more detail. In the end, is still says about 25% of it is taxable in NJ but I'll keep at it.
No matter what I try, TurboTax (on-line Premier PC version) keeps saying the RMD from my inherited Roth is taxable in NJ. Federal is correct (0 tax due). I enter 0 in box 2a, box 2b is checked and box 7 says T (I spoke to Fidelity and they say they do not determine if an inherited Roth distribution is Qualified). I've tried all the suggestions from above multiple times but the problem remains. TT knows it is an inherited Roth from 2012 but it still thinks it is taxable in NJ. There is no field to enter 0 tax due from NJ. It seems that there is still a glitch in the 2021 on-line premier version for NJ that the original questioner asked about for their 2020 taxes. Does anyone have any other suggestions, or know if it would work properly if I purchased the boxed version (is the boxed version generally better for more complex issues)?
I just did an experiment. The $5000 showed up on Form 1040, but $0 was taxable for federal tax purposes as it is supposed to be.
But on the NJ return, the $5k is not even showing up as taxable income at all.
My question to you is, how did you confirm that the Roth distribution was taxed on your NJ return?
By NJ tax law, the Roth is not taxable as long as it meets the requirements for federal purposes.
Good question. It's clear that it is being taxed in NJ because the TurboTax Retirement Exclusion Summary lists the amount being taxed by NJ in a table (96% of the distribution for some reason), and if I delete that 1099-R then my NJ refund increases by the amount of the NJ tax on my inherited Roth distribution. It all seems to key off the Distribution code "T" in box 7, with no way to correct for that (unlike the Federal form).
Yes, you are correct in that a Code T in box 7 will be deemed as a non-qualified distribution. However, if there is a Code T in box 7 of the 1099-R, and the distribution was made after the five-year taxable period, it will be considered a qualified distribution and not taxable in NJ.
In a previous post you mentioned that the firm will not determine for you whether the Roth distribution was qualified or not; however, you indicated that such distribution was in fact qualified. Given these facts, enter Code Q in Box 7 on the relevant page in the federal section of TurboTax. In our test return, which was prepared using TurboTax online, our Code Q entry for Box 7 resulted in no federal tax for the inherited Roth IRA and no NJ tax for the inherited Roth IRA.
As you enter the inherited Roth IRA information in the federal section, you may see the page "Review your 1099-info." Click Continue to proceed through the remainder of the application. When we opened the state section, and began to complete our test NJ return, we did see the page below which indicated that our Roth IRA was not taxable income in NJ. As a reminder, keep all of your records that support your position that the inherited Roth IRA was a qualified distribution.