401K Contributions taxed by NJ?
A client rolled his 401K to an IRA account and had a question for me. When he was working he believes that the State of NJ did not recognize the 401K deduction , therefore his contributions were taxed by NJ going into his 401K. Therefore, the portion of contribution that was taxed (by NJ) should not be taxed by NJ when taking a withdrawal. Is that true? If so, do companies keep track of this kind of information?
Permalink Submitted by Alan - IRA critic on Wed, 2019-02-20 01:02
NJ DOES allow pre tax 401k contributions, but not pre tax IRA, 403b, or 457 contributions. But I don’t know if NJ always allowed 401k contributions to be pre tax back as far as client’s first 401k contributions. If the client has kept accurate records of the amount of after tax 401k contributions made (if any), and then rolls the 401k to an IRA, the IRA distributions would be partially non taxable as basis is prorated with the pre tax amounts in the IRA. Everything would be taxed just one time. However, I cannot imagine that most people have kept lifetime accurate records enabling them to file an accurate NJ return when they take retirement plan distributions. A considerable mess has been created by these deviations from federal tax rules and I don’t know how the NJ tax departments, tax preparers, or residents are effectively dealing with the situation.
Permalink Submitted by Jeffrey Condit on Wed, 2019-02-20 15:59
Thank you!