california state tax on ira distribution (no penalty)

[ajahearn]

We withdrew IRA money (both over 59.5 yrs) for educational expense and thought we didn't have to pay taxes - stupid me.  Federal is handled by TT but CA State asks for a ridiculous calculation based on how much state is vs federal - which I paid neither.  So how do I compute the correct CA state taxes?  Thanks in advance.

[tagteam]

I'll page @dmertz to see if he has any input.

[dmertz · Accepted solution]

The taxable amount of an IRA distribution is ordinary income, so there is no California calculation involved that is specific to the IRA distribution.  The taxable amount is included in federal AGI is not reduced on your California tax return when computing the California income tax [Edit: unless you have California basis in nondeductible contributions made in 1987 or between 1982 and 1987 which you will need to have tracked to be able to claim; see VolvoGirl's post below and FTB Pub 1005].  Because you are over age 59½, the Form 1099-R will have code 7 indicating that there is no early-distribution penalty.

Income from an IRA is income in your state of residence.  If you are a California resident, the IRA distribution is California income.  If you are not a California resident, the IRA income is not California income.

[TomD8]

The only circumstance in which a calculation might be necessary would be if you moved into or out of California during the tax year and took an IRA distribution in both states.  In that circumstance, you would have to allocate the total IRA distribution between the two states.

[VolvoGirl]

A long time ago when IRA first came out California did not give you the same 2,000 deduction as federal.  I think it was only 1500?  So you had a 500 basis in CA.  I can go look up my old returns.  But I'm planning to not bother with it and just ignore it and pay the tax on the whole amount for CA.

I looked up my excel spreadsheets and found one for IRA that has my 1986 federal basis as 2,000 and CA as 1,500.  1987 is 2,000 for both.  

[ajahearn]

My issue here is that TT is not automatically calculating how much I owe.  It is specifically asking me to do a calculation comparing state vs federal taxing of this distribution.  As there was no taxation on distribution, leaving the value as 0 is confusing TT.  It thinks owe nothing but federally I owe a lot.  At this point I am tired of TT not doing what it needs to do so I am just giving it a number where I pay CA some money in the hopes that when they figure out what I owe them, it will be close.  I just do not understand why TT is asking this question - makes no sense.

[dmertz]

If your IRA contributions when originally made were treated the same on your California tax return as on your federal tax return, the California taxable amount is the same as your federal taxable amount.  This means that if all of your traditional IRA contributions were deductible on both your federal and California tax returns, the entire amount of the distribution is taxable on both returns and there should be no adjustment shown on California Schedule CA Part I Section A line 4 column B or column C.  Perhaps @VolvoGirl can explain how to make that happen in TurboTax.