NJ tax basis

Submitted by david kahn on Fri, 2018-01-26 18:57

my wife has a 403b. Contributions were exempt for federal but taxable for NJ. I plan on liquidating the account & rolling it over into a separate IRA. Does the tax basis from the 403b carry over so that for NJ purposes only a portion of the distribution would be subject to NJ income tax or does it lose that basis when rolled over ?

David



Submitted by Ben Meyer on Fri, 2018-01-26 20:27

  • The NJ basis is maintained and rolls into the IRA.  You can probably determine your NJ basis by looking at a recent statement from the 403(b) plan.  They will list something like “Total Employee Contributions” or “Investment in the Contract”.  This would be the NJ basis, assuming that the account has been at the same 403(b) provider since the contributions were made.  The contributions can also be determined by looking at the W-2 forms going back for each year in the past that contributions were made, assuming that the old W-2s are still available. 
  • This also assumes that all contributions to the 403(b) were pre-tax salary reductions for federal tax purposes, and that no after-tax contributions were made.  Likewise, it also assumes that the 403(b) plan did not have any special features such guaranteed return of principal, or something similar, and that the 403(b) account was not converted to a fixed annuity.
  • After making the direct rollover to an IRA, the IRA will have NJ basis that came from the 403(b).  The NJ basis will not be reflected in the 1099-R from the 403(b) for the rollover unless the plan shows it in box 9b, which may or may not be filled in.  If shown in box 9b, it should be the same as shown on the 403(b) statement or as the total from the old forms W-2.
  • The NJ basis in the IRA will then be tracked using NJ Worksheet C.  If the only funds in all her the IRAs are from the 403(b) rollover this will be a simple matter.  But it there are other IRA accounts, or earlier IRA contributions, tracking the NJ basis can become quite complex.  If so, please advise and I can post some further info.  
  • The NJ basis due to the non-deductible 403(b) contributions will become a part of each distribution taken from the IRA in the future.  By using Worksheet C you will be able to determine the portion of each distribution that is excluded from NJ income tax.  Worksheet C is the approximate NJ equivalent to federal form 8606, but with a few NJ quirks.

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