I left my previous employer (457b non government) in 2019 and elected to take my 457b over a three year period with the first distribution on 4/1/2020. State taxes where paid on the contributions. The employer did not make a contribution. The total contribution is known (for discussion let us say $100K), but the final distribution amount after three years will not be known as it is still invested. (Currently let us say, I received $50K in 2020 and currently $150K is left at the time of filing, but the market my change that amount over the next 2 years.) I am not retired. Fidelity which holds the 457b issued a W2, showing same wages ($50K) in boxes 1 and 16. They show some Fed tax and state tax withheld in boxes 2 and 17, but remember I did pay state tax on the contributions. NJ website states: Section 457 Plan distributions to nongovernmental employees continue to be reported on federal Form W2. (Not 1099R). TurboTax handles the Federal return without issue, but how do I handle the NJ State taxes? I figure I must use the General Rule of Accounting, since the employer did not make a contribution. From NJ tax site
Worksheet B
General Rule Method
1. Your previously taxed contributions to the plan ................................1.___________________
2. Expected return on contract* ....................................................................2.___________________
3. Percentage excludable (Divide line 1 by line 2) ..................................3.___________________%
4. Amount received this year ..........................................................................4.___________________
5. Amount excludable (Multiply line 4 by line 3.
Enter here and on Line 20b, Form NJ-1040) ........................................5.___________________
6. Taxable amount (Subtract line 5 from line 4.
Enter here and on Line 20a, Form NJ-1040) ........................................6.___________________
Did I use a different expected return on contract number depending on the remaining investment amount each year? Do I have to override TurboTax to get the numbers to work? Am I missing anything
Yes. In the federal interview, you must enter the correct taxable amount on the Form W-2.
Yes, the remaining investment will change. The financial institution will provide the expected return each year and it will change based on age and remaining balance, as well as rates which also fluctuate.
If you would recover the entire contribution balance in three years of course you could use that method. Then everything received after that would be fully taxable.
Once you have determined the amount that should be taxable on the New Jersey return, you must go back to the federal entry of the Form W-2 and enter the taxable amount in the State Distribution field. Be sure to enter any state withholding and you can use the federal EIN if there is not a State Number listed for Box 15.
Use the worksheet you have pictured to determine the taxable/tax-free amount each year for your entry. You are on track.