In 2019, I contributed $6676 of after-tax income to my employer 401(k), and from those funds I received an additional $754 as tax-deferred growth. I rolled over the $6676 to my Roth IRA, and the $754 to my Trad IRA. My 401(k) provider issued a 1099-R which showed a gross distribution (box 1) of $7430 with $6676 worth of Roth contributions (box 5). So far so good.
Now onto my IRAs. In 2019, I contributed $5500 to my Trad IRA for the 2018 tax year, and immediately backdoor converted those funds to Roth. I then contributed $6000 to my Trad IRA for the 2019 tax year, and again backdoor converted to Roth. Months later, I received the $754 above in my Trad IRA, and again backdoor converted to Roth. My IRA provider issued a 1099-R which showed $12254 for both box 1 and box 2 (i.e. 5500 + 6000 + 754).
I believe I should only be taxed on $754, because those were tax-deferred dollars that were converted to Roth, and indeed that is what my Form 1040 box 4b shows.
Now onto the issue: when I file my New Jersey state taxes, Turbo Tax is saying that my total New Jersey taxable pensions is $7430.
On an earlier screen, titled "Roth Conversion for <NAME>", I had an option to specify that $11500 of the $12254 distribution was previously taxed by New Jersey (i.e. $12254 - $754 = $11500). When I dug into the New Jersey form "Pensions Wks-TP", it listed the after-tax $6676 I rolled over from my 401(k) as Federal Taxable.
So I believe the $7430 taxable pension comes from the $6676 and $754 amounts, but the error seems to be that the $6676 amount is getting included. The $6676 amount was a post-tax contribution by me, not my employer, to my 401(k) that I subsequently rolled over into my Roth IRA.
I'd appreciate any help on how to correct this.
Maybe it doesn't need correcting.
NJ-1040 Worksheet C which is embodied in the Pensions Wks, does not allow recovery of 401k contributions, only your already NJ-taxed IRA contributions made while a NJ Resident.
Hi @fanfare, thanks for your reply. This is the first time I've heard the term "recovery of 401k contributions", could you please provide a reference?
I'm having a hard time accepting that the $6676 is correctly marked as taxable. That $6676 was already taxed by New Jersey, because it was an after-tax contribution to a 401k that was rolled over to a Roth IRA. If what you say is true, then shouldn't every Roth 401k rollover also be taxable? That doesn't sound right...
Recovery of IRA contributions is the New Jersey term for prorated non-taxable part of an IRA distribution as a fraction of your "unrecovered " contributions in prior years.
That's contributions to an IRA, not to a 401K.
Otherwise, distributions from tax-deferred accounts are NJ-taxable income for NJ residents.
put another way, you can't do a "back-door" Roth IRA conversion by way of a 401k, only an IRA into which you have recently contributed those funds.
Thank you for elaborating. I'm not sure that my situation falls under what you've described. The after-tax contribution of $6676 to my 401(k) was not a conversion, but instead a rollover. My form 1099-R box 5 shows $6676.
Please identify exactly which part and line number in that pension wks is showing the 6676 amount
It's Part E - Federal Pension Amount, line number 1.
I've noticed that the table on the first page (which lists columns A through H) might have errors. There's a column which says "Check if Roth Conversion" and the box is checked for the line with the $6676 amount. However this was a rollover from the after-tax portion of my 401(k), not a Roth conversion. Column B also lists $6676 for the Federal Taxable Amount, which isn't correct.