NJ 401k rollover and withdrawl questions

[budlavin11]

In 2020, I both had a rollover from a 401k to my personal IRA (due to employer closing) and a small withdrawal from my same personal IRA.

I've entered all the data correctly in TT deluxe federal from both 1099-R forms.

When I get to NJ forms, the total amount for both the withdrawal AND rollover are showing up as income on line 20a (and the box above showing the full amount under Taxpayer and zero under spouse). Nothing is listed in 20b "Excludable Withdrawals".

My question is that all these funds (withdrawal and rollover from 401k to IRA) come from accounts that were already taxed in NJ (I read that 401k contributions are taxed by NJ at the time of contribution)

So why does it appear that the total withdrawal and rollover amount on my NJ form is being taxed? 

BTW - when I did it the first time, the rollover showed as income for both my spouse and myself and the owed taxed jumped up. Now going thru it with the TT online help, it only shows on NJ as my income, but the total taxes due haven't changed.

Thanks!

[AmyC]

If NJ already taxed the income, it should not be taxed again. You have to go back and answer the questions in federal then correctly answer state.

Follow these steps:

Federal side:

1. Edit your 1099-R
2. On the 1099-R forms, do you have NJ marked in the state section? If not, the program asks you to select the state where you live and NJ can be selected there.
3. The program asks about safety officer, no
4. Where is this distribution from? General rule pension
5. Fill in the boxes with the NJ information
6. continue
7. Select from a  qualified or non-qualified plan
8. keep answering questions

As you go through NJ, it will show your pension and then a screen that says General Rule Method. 

1. Enter your basis, everything you contributed to the plan.
2. Enter return on contract - this distribution plus any prior distributions from this plan.

[fanfare]

another wrong answer from the "experts".

The pension rule has nothing to do with IRAs and 401k withdrawals.

[fanfare]

You have a basis in your IRA as far as NJ is concerned because you did not deduct IRA contributions from your NJ taxable income in all those past years.

Those are unrecovered.

See Worksheet C in the NJ Resident Return Instructions for how to avoid double taxation on that money (i.e. recover it) when you withdraw from your IRA. There is a first year calculation, and then a calculation for all subsequent years. OR use TurboTax to do it, it is the same thing but in a different presentation.

You will need good records showing what you put in over the years, or some way to reconstruct that information.

However, if the Retirement Income Exclusion eliminates your tax, the unrecovered calculation becomes moot.
You qualify for the pension exclusion if:

• You (and/or your spouse/civil union partner, if filing jointly) were 62 or older or disabled as defined by Social Security guidelines on the last day of the tax year (December 31 for calendar year filers); and
• Your total income for the entire year was $100,000 or less.

[fanfare]

If you do a Code G rollover, there is no Federal tax and no NJ state tax.

it is not a distribution.

[budlavin11]

Amy C, 

Thanks for the info, but this is about 1) a rollover from a 401k to my personal IRA and 2) making a one time withdrawal from my IRA that qualified for the CARES act last year.

I understand I can spread the taxes on the withdrawal over 3 years for federal tax, but the total of both appear to be showing up as income on my NJ income tax return and charging me NJ tax for it.

As I understand 1) these funds WERE taxed by NJ when I deposited them, 2) I shouldn't have to pay NJ tax on them again. I'm trying to find out why TurboTax is not calculating (or moving it over from federal return) correctly. Do I have to even list them on my NJ return? And if so, how do I show them as exempt from NJ tax?

Thanks.

[budlavin11]

Thanks for the info Fanfare. I would expect that the code G rollover shouldn't be taxed for fed or NJ. But it appears that NJ is. I saw a thread here from last year (and comments even this year) about a glitch in TT. 

As for the distribution (withdrawal) from the IRA, I'm also trying to confirm where it show that it ISN'T taxed on the NJ form, because it shows as income (both together), and when they carried over from fed, my amount owed went up significantly.

I will check the instructions you mentioned in the other post and will probably have to manually correct it and file it.

Thanks for the help.

[fanfare]

@budlavin11 

If you have a small distribution it will be taxable.

The best you can do is exclude some of that using the "recover contributions" process I described above.

For a small amount if you are not retired, it may not be worth the effort.

You can start recovering your NJ basis in any year.

Meanwhile keep good records of all your distributions, like this one, and contributions.

I have no clue why a Rollover would appear as taxable on NJ return.

Delete that Rollover so it is gone on NJ, print your NJ and mail it in.

Then put it back and e-File only your Federal return.

Caution: you may have to delete NJ entirely to do that.

[budlavin11]

Fanfare:

I did as you mentioned and deleted the rollover on my federal and deleted my NJ return and started over. Doesn't appear on NJ now. I also read your msg about unrecovered and worksheet C.

Here's what I'm trying to clarify regarding the withdrawal from my IRA in 2020 - 

1) Most (if not all) of my IRA were rollovers from various former employers from qualified (401k, 403b, etc) funds that I contributed to and had some amount of matching. How would I know if those contributions I made over the years were NOT taxed by NJ? (I've always been a NJ resident) I know they were NOT taxed Federal, but never thought about NJ... the worksheet C and TT both want to know the amounts that were previously taxed. Before this thread, I've never heard that contributions pretax are only for Fed and not NJ. But according to some reading, it appears my contributions should HAVE BEEN taxed by NJ.

2) Is this different because they were initially in a tax sheltered (401k, 403b) account and have since been rolled over to my own IRA?

3) for clarification, we are not over 62, disabled, or any other thing that qualifies us for an early withdrawal.

Thanks again for your help!

[fanfare]

It would seem to me  that your IRA basis for NJ purposes includes any NJ-taxed amount you put into a 401k or similar via payroll deduction while residing in NJ and rolled over.

Do you know exactly what that amount is? probably not.

I never did convert any of my 401k to an IRA.

Therefore, I know exactly how much I put into the IRA because I have all my 5498 records.

As you may or may not know, NJ recovery worksheet is relatively new (2013). At this time, NJ recovery only considers IRAs.

I haven't really researched it any more than that.

There may be other nuances.

[budlavin11]

Thanks again for the insight. I too have records of all my contributions via payroll deductions into various employer's plans (nothing pre-1987). I had to roll them over since over the years, I've worked many places (some no longer in business) and didn't want to leave any of that money behind. I just wasn't aware that the contributions were taxed by NJ when made. I assumed since they were pre-tax for fed, the same was true for NJ. Since I still contribute to my current employer's 401k plan, I don't make separate contributions to my personal IRA.

I guess I'll deal with this when I retire and start taking RMD's too.

Thanks again for the help.

[1597980]

Hi, I had a rollover into IRA in 2021 from an employer 401K last year and was shocked that NJ charges income tax on the entire amount.  My 1099R does show G as distribution code.  According to Turbo tax instructions, NJ has a different rule than federal and that unless you paid taxes on these contributions, the rollover is taxable income.  I would assume the contributions were not taxed in NJ since they were not taxed Federal.  Does Turbo Tax have a glitch or am I understanding something wrong?  

Thank you!

[fanfare]

What ?

A Rollover (Distribution Code G)  is not taxable. period. Federal or State.

@1597980 

If you paid income tax you made a filing error and need to amend your NJ tax return.

[1597980]

You are right.  I looked at the actual tax form instructions on NJ website and it was very clear that a rollover does not even need to be reported on NJ return.  Turbo Tax's step by step interview questions and explanations are very very misleading - they even specifically say while they are federally tax free, NJ Is different.