Does NJ Tax a 401k to IRA Rollover ?

[rjettenhuber]

I am a NJ resident and I did a 401-K to IRA rollover in 2019.  If I read the 2019 NJ 1040 instructions correctly, NJ will collect tax that rollover for the year the rollover is done.  Ie.  This means that the full amount of the rollover I did in 2019 must be reported as taxable income on NJ 1040.  Is this correct?  If so, and since I am getting close to taking RMD's, how will I ensure I don't get double taxed when I start taking my RMD withdrawls on this portion of my IRA?  Does Turbotax track this automatically going forward?  The following is from Turbotax when I click "Learn More"... 

(2) Amounts rolled over from an employer's 401(k) plan to a SIMPLE IRA, which were not previously taxed by New Jersey, must be included in New Jersey income in the year of the rollover (in most cases, it would be the entire amount rolled over).

These rollovers to a SIMPLE IRA will need to be added to the Pensions, Annuities and IRA Withdrawals Worksheet, and the portion of the rollover not previously taxed by New Jersey, must be included in New Jersey income.

[fanfare]

did you rollover into a SIMPLE IRA ?

[fanfare]

I don't see anything in NJ instructions to corroborate this.

In any case, contributions to a 401k are taxed in the year of contribution 

so your contributions would be subtracted.

[rjettenhuber]

I rolled it over to my existing Traditional IRA.  I think that's where my misunderstanding was.  I thought a SIMPLE IRA was the same as a Traditional IRA.  So I now assume that the rollover is not taxed now; rather it will be taxed when I withdraw via RMD's.  That's what I thought originally but got confused by the "SIMPLE" IRA.

[Irene5]

I have the same issue with a rollover from 401K to IRA.  I wasn't aware of a difference between a simple IRA and a traditional IRA.  What exactly is the difference?

[MaryK4 · Accepted solution]

A SIMPLE IRA is established by a small business employer. If you had an IRA retirement plan through work it (your employer would have taken your contributions directly from your pay and usually match a percentage), it was was probably a SIMPLE IRA.  A traditional or Roth IRA in contrast would have been set up by you and contributions made by you.

@rjettenhuber

[dc022024]

How to you solve this. I also a NJ resident and I have similar situation.  I have around 70k after tax in my company 401k and gain from the money around 30K.  I rolled over the 70K non taxable money into a Roth account in Fidelity and 30k taxable in a traditional IRA.  I found these money added to my NJ income and need to pay state tax.  I do not understand why tax me and I have not use the money. Even the Roth need to be stayed there for 5 years.

Thanks.

[DaveF1006]

To clarify, was your company's 401K a Roth 401K? If not, then I am confused how the $70K is considered after tax dollars since a traditional 401K is funded by pre-tax dollars.

[dc022024]

I am not sure it is Roth 401k or not but was told it is after tax money. I called company three times through different departments and finally a lady told me the after tax money only withheld fed tax not NJ tax.  Now I understood that I need to pay NJ state tax  when I move it into a Roth IRA.  The gain from the after tax money do not need to pay both Fed and State tax when move it to a traditional IRA and will pay both taxes when withdraw.

[AbrahamT]

You would have to pay taxes on any rollover which is "NOT LIKE KIND" like a Roth 401k to  a Roth IRA or

rolling over from a  a traditional IRA to a Roth IRA  as well. So yes, in your case, you would have to pay the NJ taxes because it wasn't withheld. 

[Edited 02/12/2024|1:44 pm PST]

Sunday, January 21st