401K rollover to Roth and traditional IRA are taxable in NJ

Forum|Forum|2 years ago
February 8, 2024
1 reply
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Hi,

I am a NJ resident. I have around 70K after tax money in company's 401K and around 30K gain from the after tax money. I rolled over the after tax money into a fidelity Roth IRA account and the gain into a traditional IRA within 60 days follow the IRA rules. When file NJ state tax return and this 100k rolled over is added to my income and need to pay tax. For the after tax rollover I understood it need to pay as income but If I paid 2023 state tax for the gain and will be taxed twice when withdrawing traditional IRA?

Thanks and welcome to give me your feedback!

DaveF1006

It depends. Your new Roth IRA will not be taxed on distributions unless there are earnings from it in the future. Only the earnings are taxed unless any of the following conditions exist after a five-year holding period of the Roth.

You reach age 59½.
You become totally and permanently disabled.
You died, and the money is being paid to your IRA beneficiary or estate.
You’re withdrawing up to $10,000 for the purchase of a first home.

There are other exceptions to what I listed but these are the common ones. Now regarding your gain that you rolled into a traditional IRA. If this is a non-deductible contribution, this shouldn't be taxed in the future. You do need to complete form 8606 and include this in your return because form 8606 tracks IRS-related transactions. The IRS says that you need to complete form 8606 for the following reasons. This is listed in the following source.

Nondeductible contributions you made to traditional IRAs.
Distributions from traditional, SEP, or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs.
Conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs.
Distributions from Roth IRAs.

Now to address your concern about double-taxation. If I understand you correctly, you were state taxed on distributions that became rollovers on the 1099R form and this was reported in Boxes 14-16? If so, this is a withholding tax that is credited to you as a tax payment made in the state of NJ. Being taxed under the conditions I have listed above may above occur but is independent from your withholding tax. If you paid some other tax other than withholding, let us know so we can advise you how to report this.

Lastly, let's get you started filling out the 8606 to comply with IRS requirements.

Open your return, if it isn't already open.
Inside TurboTax, search for this exact phrase: IRA Contribution Information. The search bar is a magnifying glass toward the top right portion of your screen
Select the Jump to link in the search results.
Proceed through the IRA section, answering questions as you go.
Answer Yes when you reach the screen, Any Nondeductible Contributions to Your IRA?
Select Continue.
We'll generate and fill out the 8606 behind the scenes.
This works for both the Turbo Tax online as well as desktop versions.