The New Jersey gross income tax treatment of Roth IRAs conforms to the Federal treatment. Direct contributions to Roth IRAs are not deductible and qualified distributions from Roth IRAs are not includable in New Jersey gross income.
Qualified taxpayers, regardless of age, may be able to establish a Roth IRA. Contributions may be made either directly or rolled over from a traditional IRA. Contact the Internal Revenue Service to see if you qualify.
Rollovers. You can withdraw all or part of the assets from an existing traditional IRA and reinvest them (within 60 days) in a Roth IRA if you satisfy the Federal requirements. In most cases, your contributions to a traditional IRA were previously taxed in New Jersey and are excludable from your gross income. However, accumulated earnings in a traditional IRA have not been previously taxed and must be included in New Jersey gross income in the year they are withdrawn. Also, any amounts rolled over from a traditional IRA to a Roth IRA which were not previously taxed by New Jersey, such as a rollover distribution from an employer's 401(k) plan, must be included in New Jersey income (both principal and earnings) in the year the funds are withdrawn from the traditional IRA. 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.
Qualified Distributions from a Roth IRA
A qualified distribution from a Roth IRA is excludable from gross income and should not be reported anywhere on the New Jersey income tax return. A "Qualified Distribution" is one which is made after the five-taxable-year period beginning with the first taxable year for which a contribution was made to the Roth IRA, and which is made:
- On or after the date on which the individual reaches age 59½; or
- To a beneficiary (or the individual's estate) after the individual's death; or
- Because the individual becomes disabled; or
- As a qualified first-time homebuyer distribution as defined by the Internal Revenue Code.
A distribution will not be treated as a qualified distribution if it does not meet the Internal Revenue Service's "five-year rule" exception. Under this "five-year rule," a taxpayer who established a Roth IRA in 2008 will not be able to receive a "qualified distribution" before 2013. Contact the Internal Revenue Service for more information on the five-year rule.
Nonqualified Distributions from a Roth IRA
A nonqualified distribution is one which is not made under one of the four circumstances described in "Qualified Distributions," or one which does not satisfy the IRS's five-year rule. A distribution which is considered nonqualified for Federal income tax purposes is also considered nonqualified for New Jersey income tax purposes.
. In the case of a nonqualified distribution from a Roth IRA, taxable amounts withdrawn are reported on the New Jersey tax return as taxable pension and annuity income. The New Jersey taxable portion of a nonqualified distribution from a Roth IRA is calculated in the same manner as a distribution from a traditional IRA, using the IRA worksheet. 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.
. Because nonqualified distributions are reported as pension and annuity income, the pension and/or other retirement income exclusions may apply.
For more information on IRA withdrawals, view Technical Bulletin TB-44
, Roth IRAs, and Tax Topic Bulletin GIT-2
, IRA Withdrawals.