Why does TurboTax NJ insist that a distribution from a 401k is from a pension or an annuity?

[JotikaT2]

The tax treatment depends upon made the contributions were made.

Contributions made after 1/1/84 were not taxed when they were made.  As such, the distributions are fully taxable.

Contributions made before 1/1/84 were taxed when they were made.  As such, you would need to calculate how much is taxable and how much is excluded from your distributions.

Please see pages 13-15 of the attached publication for more information as to how the amount is determined.

NJ 401(k) calculation sample

[ff40]

This reply does not answer my question.  I already knew how NJ tax instructions applied to my 401k, and my 1099R told me the split between taxed and untaxed amounts.  These amounts were correctly entered into Turbotax from my 1099R.  Because Turbotax NJ does not differentiate between a 401k, annuity, and pension, Turbotax starts asking questions when looking for errors in the return.  These include the total value of past, current, and future distributions as if this 1099R was from an annuity.  Why does it do this when it already has the required information concerning tax and untaxed amounts?

[BillM223]

First, pension and annuities are taxed the same way. This often leads to taxpayer confusion when TurboTax says one thing but the taxpayer thinks they have the other - pensions are taxed like annuities and vice-versa.

Second, when TurboTax asks about the questions about the pension/annuity, this is because TurboTax is looking to find if you had "basis" in the retirement plan so you should not pay tax on part of the distribution.

Basis in a pension/annuity are after-tax contributions that were made to the pension/annuity; these contributions are not taxed again when they are distributed according to a schedule determined by an actuarial table. 

If there is an amount in box 2a on your 1099-R and you tell TurboTax that this was the taxable amount in the previous year, then you won't be asked these questions. Alternatively, if you had no basis in the pension/annuity, answer zero when you are asked about basis (also called "contributions") in the pension/annuity.

In both cases, TurboTax will use the full amount of the distribution as taxable at the federal level, and as for New Jersey, I presume that the a screen (or more than one) that asks you about the dates so that the correct NJ tax can be calculated.

[ff40]

Box 2a does have a taxable amount entered, but Turbotax ignores it.

[ff40]

Actually Turbotax handles it correctly on the Federal level.  It's the NJ part that ignores the input from box 2a.

[BillM223]

Are you a New Jersey resident?

When you entered the 1099-R on the federal return, when it asked you what state this applied to, did you check off New Jersey?

On the next screen, what did you indicate was the source of the distribution?

In the New Jersey interview, where do you see these questions about past, current, and future? Was this in the state Review?

[ff40]

All the information is entered correctly.  The state is identified as NJ, Box 7 is blank, money is not from employment as a public safety officer, the distribution page shows the correct inputs for distribution and NJ tax withholding, and Payer's NJ Tax ID No.  The distribution was from a Qualified Plan but was not a Disaster Distribution.  The next page asks about Periodic Payments.  I could have answered either yes or no to this question.  It depends on how one interprets the words "Periodic" and "regular".  I chose to answer no.  However, I do take an RMD from this 401k every year I'm required to do so, but they're not on the same date every year.  Maybe I should have answered yes.

[ff40]

Yes, it was in the NJ state review.

[BillM223]

Periodic means that you received several payments as part of a regular payout (as opposed to a single, one-time payout).

Monthly, quarterly, weekly would all qualify as periodic.

Normally, a pension payment is the RMD for that plan (the plan administrator makes sue that it is, for that plan).

So, your distribution each year is once a year, and is done just to satisfy your RMD? 

[ff40]

The only distribution I have been taking from this 401k is the RMD.  I also have a pension and a traditional IRA and the distributions from each of them are handled correctly.

[BillM223]

I am unable to reproduce this situation. Of course, there are many options in my test return that are likely different from yours.

Can you take a screen shot (without any personally identifiable information) of the Review screen(s) that you are talking about?

Alternatively, can you contact TurboTax phone support, when an agent can see your return (with your permission, of course)?

***

The Free Edition of TurboTax does not provide phone support. If you have a question, you can ask it here on the Community and we will try to help you.

If, however, you are using a paid version of TurboTax, please see this TurboTax FAQ to contact TurboTax support by phone.

[ff40]

I've forced the worksheet to be correct so I'll have to go back and try to recreate the situation.  It may take awhile.

[BillM223]

Sorry. Unfortunately, since we in the Community cannot see your tax return, we are often handicapped at reproducing your situation.

Perhaps since we are so close to the filing date and since you apparently had it working the way you wanted, you should leave it alone and file.

[fanfare]

When entering your 1099-R, when you get to the page "where is this distribution from?"

of the options, three-year rule or 401k, General rule or 401k,  none of the above

Select "None of the above".