Which basis when you have multiple 403b’s in NJ
I’m in NJ with a 403b question. I have two 403b’s. Both 403b’s are from the same employer same custodian, but in 2015 the custodian changed the fee structures or something …. and created a second 403b. Each 403b has its own plan number and the balances are reported separately.
On the newer 403b account, I just did an in-plan in-service rollover to a ROTH 403b. The entire rollover transaction only occurred within the one 403b… they were not combined or anything, still discrete accounts.
It’s NJ so I’ve already paid tax on my contributions and I’ve been keeping a record of the basis using my W2’s. I know that I have to pay federal taxes on the entire rollover, but for NJ there is a significant basis in both accounts. I’m unsure if my NJ taxes should be calculated using the individual 403b basis? or the combined basis of both 403b’s?
I called the custodian and asked about the NJ basis and they said State basis is not tracked since that’s specific to NJ and the federal is zero. I thought if they gave me an amount I could determine which basis is correct. I suspect that the call center isn’t equipped to answer such a specific question but their computers hopefully know the answer. I can wait for my 1099-R in January and see what they eventually put in box 9b, but I suspect that it will be blank. I even asked a friend who recently retired and they said box 9b was empty last year.
I went through the NJ tax website and didn’t find any details other than:
“Section 403(b) Plans If you participated in a 403(b) plan, your contributions to the plan were included in your New Jersey income when you made them. When you retire, you will only be taxed on amounts you receive exceeding those contributions. Use IRA Worksheet C to calculate the taxable and excludable portions of your distribution.”
I assume that I’ll be calculating the basis with no help from the 1099-R. Which basis is correct? individual 403b? or combined both 403b’s?
Permalink Submitted by Alan - IRA critic on Thu, 2021-11-04 21:42
Worksheet C is designed for IRAs, but NJ wants that form used for 403b plans as well. A taxpayer may have several IRA accounts, and transfers between them, therefore as is the case for Federal Form 8606, the basis applies pro rata over all IRA accounts. It would make no sense to attempt to treat every IRA account separately. There are no instructions to treat 403b accounts any differently under the same worksheet than IRAs. Bottom line, I doubt that the tax dept even looks at these worksheets. The instructions do not seem to have been updated to accomodate the massive portability expansions over the last 2 decades. I would add your 403b plan balance and contributions together to be consistent with how IRAs would have to be reported. There are now several states who have deviated from the federal rules, and in retrospect that turned out to be very poor tax policy and there is no way to back out now. That said, you might call a local tax preparer to see if they have different advice or have received insider guidance from the NJ Tax Dept.
Permalink Submitted by Patrick Szary on Thu, 2021-11-04 23:19
Thank you. I was just searching for more intel and came across this older post from 2010 that suggested it might be seperate.”Each plan would be calculated alone but if 403b plans were combined, then there would be a consolidated basis for the new plan. When the 3 year option does not apply, a pro rata calculation is done for each plan including combined plans. One result from consolidating plans is the averaging of basis. You would recover basis more quickly if you took distributions first from the plan with the higher amount of basis rather than combining them. “https://irahelp.com/forum-post/15325-tracking-cost-basis-distributions-403bThoughts?Unfortunatly, most NJ 403b folks are probably paying double tax or have an income level that falls under the pension exclusion so it’s a non-issue since it’s excluded from NJ tax… I found very little detail online
Permalink Submitted by Alan - IRA critic on Fri, 2021-11-05 17:39
Yes, that final post 11 years ago was mine. Your immediate question is reporting the IRR you have done in 2021. Due to lack of specific guidance from the state, unless a NJ tax professional you might contact knows how the state reacts to these forms (I doubt that they do react), I would make your decision of whether to consolidate your 403b on worksheet C or keep them separate by 403b account. It’s not clear. But your decision should then be carried over to your IRA rollover to avoid changing your method according to what provides you the most state cost savings year by year. If you want to treat the 403b as separate plans, then if you eventually roll them over to an IRA, roll them to separate IRA accounts to be consistent. Since I am nowhere near NJ and have no contact with NJ CPAs, I still think you should contact one, or perhaps a former co worker who has reported distributions to see what they are doing and if they have had any state contact. Most likely, the state has created such a can of worms, my guess is that they are not auditing a taxpayer’s state basis handling if the numbers look to be reasonable. For example, given the extended bull market, they probably expect to see some pre tax gains in the worksheet numbers.
Permalink Submitted by Bruce Steiner on Mon, 2021-11-22 01:32
See page 17 of the instructions to the New Jersey return (Form 1040-NJ): https://www.state.nj.us/treasury/taxation/pdf/current/1040i.pdf .
It says that if you have more than one IRA, you may either use a separate worksheet C (see page 16) for each IRA, or you may combine them into one worksheet.
Bruce Steiner