Roth from NJ State Plan

Submitted by Douglas Bauerband on Mon, 2023-04-17 19:39

Client last year 2022 had check sent to him from the State of NJ as he had to retire as a police officer. The State would not issue two checks but only one. We divided the checks that were pre and post contributions.

We rolled the post contribution 76k into a Roth IRA and the pre amount rolled to and IRA.

He is only 47 (retired due to health)

a. if he takes a withdrawal out of the Roth will he be taxed since he has not held it for 5yrs?

b. Will the 10% early withdrawal penalty be applied?

c. Can he take out 20k since he started with 76k and not be taxed or have the 10% penalty applied?

Thank you,
Douglas



Submitted by Alan - IRA critic on Mon, 2023-04-17 20:27

  • Since the Roth received after tax dollars, the 76k is treated as regular Roth IRA contributions and can be withdrawn anytime without tax or penalty. Any gains generated on that 76 however will be subject to tax and  penalty until his Roth is qualified. 
  • No, not on the first 76k.
  • The pre tax check he received should have been reduced by 20% mandatory withholding. He needs to replace any withholding to complete the rollover avoid tax on the withholding. 


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