IRA Withdrawal

Forum|Forum|2 years ago
February 4, 2024
1 reply
0 views

For tax year 2023, I converted $30K from my SEP IRA into my Roth IRA. This is the first time I have done this and it appears I am being charge NJ tax on the withdrawal. My understanding is my contributions were taxed when I made them and are not taxed by New Jersey when withdrawn. Interest, dividends, and other earnings credited to my SEP are taxable when withdrawn. I have managed and track these numbers, but it appears Turbo Tax is not recognizing it as my previously taxed income.

JohnB5677

You didn't indicate that the SEP IRA was a ROTH, so I expect that it was NOT.

In that case, all contributions you made to the SEP were originally tax deferred . You didn't pay any initial taxes on it.
When you converted to a
- ROTH IRA the total amount became taxable.
- The ROTH IRA can grow, and when you make withdrawals, there will be no tax.
If you put it in a Traditional IRA
- it would not have been taxed now.
- However, the full amount would be taxed when you withdraw it.

We'd love to help you complete your tax return, but need more information. Can you please clarify your question?

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

fanfare

Employee

You have a basis in your IRA as far as NJ is concerned because you did not/could 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.

The nontaxable part is prorated, similar to Form8606, so there will always be some NJ tax.

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 NJ income for the entire year was $150,000 or less.