state taxes on IRA to ROTH IRA conversion
I converted an traditional IRA to a Roth in 2009. The IRA contains real estate assets that are located in New Mexico. All of the dollars invested in the IRA were originally earned in a state with no state income tax. I now live in Georgia. When the 1099-R for the Roth conversion arrived it had box 11 marked “NM”
Are Roth IRA conversions taxable by the states and if so, which state should be applicable in my situation?
Permalink Submitted by Alan Spross on Mon, 2010-02-01 22:23
Conversions are taxable according to the rules in your state of domicile at the time of the conversion. There are a few states that have specific dollar exemptions and a couple of states that may have basis in the TIRA that differs from the federal 8606 basis.
For any conversion, the IRS custodian must first determine the fair market value of the amounts converted. For some illiquid investments this could problematic. For certain annuities, the value of the fringe benefits must be included, but the 1099R dollar amount is the custodian’s responsibility. Once you get the 1099R, your state rules come into play. Most states simply follow the federal rules. But simply moving from a no income tax state erases the benefit of having done the conversion while still a resident of that state. Some states like NY might make you clearly document your intent to have left NY permanently in order to escape NY taxes.
In WS, there is a comformity problem with 2010 Roth conversions that I understand is going to the state legislature to allow residents to convert without income limits in 2010.