State Taxes on Roth Income
Do any states tax Roth interest, dividends and capital gains? Also, are there any states (that tax income) that don’t tax Roth conversions? Thank you.
Do any states tax Roth interest, dividends and capital gains? Also, are there any states (that tax income) that don’t tax Roth conversions? Thank you.
Permalink Submitted by Alan Spross on Thu, 2012-04-26 22:31
No states tax qualified Roth distributions, ie distributions taken after 5 years and age 59.5.
There are a few states that allow certain amounts annually to be distributed from a traditional IRA without being included in income, eg 20,000 in NY. Some states do not tax retirement income at all. A Roth conversion is just a taxable distribution, therefore the few states that only tax retirement income over a certain amount will also not tax Roth conversions up to that amount.
Most of the states with various excluded amounts on taxable distributions are in the NE, ie they have relatively high state income tax rates, but exempt various amounts of IRA distributions from being included in taxable income.
Here is a copy of a discussion that includes some data on how states tax TIRA distributions. The term “backdoor both” refers to the ability to make a tax deductible TIRA contribution, but then to convert certain pre tax amounts from the TIRA to a Roth IRA tax free. This saves more money that just making a non deductible contribution and doing a tax free conversion at the state level.
http://www.bogleheads.org/forum/viewtopic.php?f=10&t=86262#p1236803