This is a question about taxation of RMD distributions from a 403(b) plan in regard to New Jersey income taxes.

My wife started receiving Required Minimum Distributions (RMD) on her 403(b) accounts this past year, 2014. Therefore, the payments she received need to be reported the New Jersey income tax return to be filed by April 15, 2015, since we are still New Jersey residents.

In New Jersey, 403(b) contributions are after-tax for New Jersey purposes. (They are pre-tax for federal purposes, as would be expected.) Therefore, a portion of the distribution needs to considered as non-taxable for New Jersey purposes. The question of how to determine the taxable versus the non-taxable portion of a 403(b) distribution is not covered by any New Jersey forms, instructions, publications, or regulations that I have been able to find.

The New Jersey tax publications describe how to report distributions received under an IRA plan when the New Jersey basis differs from the federal basis, but does not cover the similar situation with a 403(b) plan. New Jersey has a worksheet for use with IRAs when the NJ basis differs from the federal basis, Worksheet “C”, with a similar methodology to IRS form 8606. However, the NJ worksheet applies only to an IRA account, not a 403(b) account.

In reading through the various NJ forms and publications, it seems that the General Rule Method, using NJ Worksheet “B” would likely apply to this situation. But this would require a separate worksheet to be maintained to track the amount of post-tax contributions that have been recovered each year. It would be somewhat similar to creating a new worksheet form for NJ 403(b) purposes, similar to NJ Worksheet “C” or federal form 8606, both of which apply solely to IRA plans, not 403(b) plans.

It is also not clear as to how to make the entries into Worksheet “B” using the parameters of a 403(b) account.

The New Jersey 3-year rule does not apply here, since the total contributions are greater than the total anticipated for the RMD for the first three years.

Therefore we are puzzled how to proceed and would welcome any suggestions or comments.