401K Rollover to Roth IRA/MA taxes Followup
Thank you Alan-Oniras for your reply to my post yesterday. Just wanted to let you know that I called the MA Dept of Revenue this AM and was told the 401K conversion to a Roth IRA is not taxable at this time. I am liable for MA taxes when I start taking distributions from the Roth IRA (same as a Traditional IRA) on any amounts that were not previously taxed by MA. You pay on the distributions not on the conversion. So, I don’t reap the same tax benefits in the future from MA that I will from the IRS with this 401K conversion to a Roth IRA. Interesting….I thought the Roth IRA could grow tax free from Federal and State taxes once the taxes were paid on the converted amount.
Judy
Permalink Submitted by Alan Spross on Wed, 2010-04-07 22:01
That response is not consistent with what is on their own website. They probably misunderstood your question, and thought you were converting from a traditional IRA rather than directly from a 401k plan. Did not the tax program also make your conversion taxable in MA? Here is a link to MA DOR:
http://www.mass.gov/?pageID=dorterminal&L=6&L0=Home&L1=Individuals+and+F…
Permalink Submitted by Judith Ambery on Thu, 2010-04-08 20:20
Alan,
Thanks for the info. Checked the link you provided. Called MA DOR again today and I was told that I given incorrect info by them previously. The guy I spoke to originally must have thought I was referring to a Traditional IRA and not a Roth IRA. I do have to claim it as income in 2009 and actually, it goes on Schedule X. I was told the rollover from the 401K to the Roth IRA is considered a distribution and that’s why Schedule X. Any qualified withdrawals from the Roth IRA in the future will not be taxed. MA follows the Federal code. I actually thought it was reportable but then wasn’t sure what line to put it on and then was misinformed. Hopefully, it’s now correct. Really appreciate your help.
Judy
Permalink Submitted by Alan Spross on Fri, 2010-04-09 01:11
OK, we are getting there, and all now agree that your Roth will be handled for MA distributions in the same manner as the federal.
But I am still concerned about the Sch X, because it appears that MA has not yet recognized that not all Roth conversions are done from an IRA account. Conversions directly from an employer plan and reported on line 16b of Form 1040 (federal), should probably be on line 4, but there is probably no harm using X as long as you get the same amount taxable as went on 16b of the federal. I think you said earlier that software was putting this on line 4, and if so I would go with the software. It is also easier for you not to try to override the software because of the risk of unintended consequences. But you should be OK as long as the taxable amount of the conversion is the same as on the federal return.