Taxable portion of an IRA to Roth IRA in NJ

Forum|Forum|4 years ago
February 24, 2022
15 replies
72 views

NJ Div of Taxation brochure GIT-1&2 states

IRA Contributions, Rollovers
If you qualify to convert an existing IRA to a Roth IRA for federal tax purposes, you also qualify for New Jersey
tax purposes, even if your New Jersey taxable income is more than the federal limitations. You can withdraw all or part of the assets from a traditional IRA and reinvest them in a Roth IRA. In most cases, your contributions to a traditional IRA were previously taxed. Only the earnings are taxable to New Jersey in the year you roll over the funds.

So, IRA contributions were made annually while I worked and the IRA account grew over those years, does that mean only the earnings above the contributions are taxable when funds are transferred from an IRA to a Roth IRA?

Example: IRA contributions from 1990 to 2000: $20,000. Grew to $50,000 in 2021. If $20,000 is rolled over into a Roth IRA, would that mean no taxes are due on the $20K rollover? Then when the $30k is rolled over, it would be fully taxable in future conversions?

Thank you.

MaryK4

Level 15

You are correct that your initial $20,000 can be rolled over with no taxes owed because it represents contributions that were previously taxes by New Jersey. TurboTax will create the Worksheets because you do have to keep track of the amounts that were taxed. After all the tax free contributions are taken out, you will pay New Jersey tax on the distributions that represent the earnings. See GIT-2 -IRA Withdrawals for more information.

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