State taxation of IRA distributions.
My client had made contributions to his IRA account while a resident of New Jersey. NJ, however, did not permit a tax deduction on IRA contributions. NJ then, once distributions were taken, wouldn’t tax the normal distributions.
He has since moved to a state that does tax distributions on a state level. Is there any way around the fact that his distributions may now be taxed twice on a state level?
Thank you.
C
Permalink Submitted by Alan Spross on Wed, 2012-01-11 23:00
I am not aware of any state provisions that directly address contributions in the few states that do not allow a deduction. But it also works in reverse, ie. if the contribution was deducted in the state of contribution, moving to a no income tax state will still result in no taxes on distributions. Some states adjacent to NJ have retirement plan distribution exclusions such as NY and I think PA.
Permalink Submitted by mk foss on Thu, 2012-01-12 03:56
You’ll have to check the state law. In CA you can subtract pre-87 basis from distributions. Pre-87 CA law and federal law didn’t agree on the amount of the IRA deduction. This state used to allow people moving into the state a deduction because they had made their IRA contribution deductions in another jurisdiction but they passed a law to specifically prohibit this a few years ago.