An Individual Retirement Account, or IRA, is a personal savings plan that consists of your contributions and earnings, plus certain amounts, if any, rolled over from pension plans. In general, your contributions were taxed when they were made and are not taxed by New Jersey when withdrawn. Interest, dividends, rollovers from tax-free pension plans, and earnings credited to an IRA are subject to income tax when withdrawn.
Distributions from an IRA are most commonly taken in a lump sum or withdrawn over a period of years. When you receive a lump sum of the entire balance in a traditional IRA account, you must report the amount not previously taxed. The taxable portion of the lump-sum distribution must be included in your income in the year you receive it.
A lump-sum distribution which you roll over into another traditional IRA or other eligible plan is excludable from New Jersey income if the rollover qualifies for deferral for Federal income tax purposes. The rollover must be made within the 60-day period after distribution.
When withdrawals are made from a traditional IRA over a period of years, each year you must include as taxable pension income the portion of the annual distribution which represents accumulated gains. For example, if the amounts not previously taxed in the IRA represent 33 percent of the "total value" of the IRA, then the "taxable portion" of the distribution is 33 percent of the total amount withdrawn in that year.
If you are filing a resident return, you must report both the taxable and excludable portions of the distribution on the separate lines provided for that purpose on Form NJ-1040.
- For more information on IRA withdrawals, view Tax Topic Bulletin GIT-2, IRA Withdrawals.
- View information on Roth IRAs, including information on conversions to Roth IRAs.