How does N.J. tax my IRA distribution?


Q.  I took my distribution from my IRA. The federal tax is based on the full amount of the distribution. The state taxed my contributions as they were made, therefore only the “profit” portion is now taxable for New Jersey. The problem is I have no idea how much I contributed, how much my employers contributed and how much is “profit.” It’s a rollover IRA that contains several accounts, including 401(k)s and 457 plans, from over the years. Do you have any guidance?
— Confused

A. Your question reflects the exact reason why it is important to keep accurate records.

You may be able to figure this out, if you’ve saved the right paperwork.

Each year you are given a statement reflecting any contributions you made into your IRA, and you need to keep these, said Steven Gallo, a certified public accountant and personal financial specialist with U.S. Financial Services in Fairfield.

Gallo said you need to realize that the only amount in your current IRA that would not be taxable upon distribution would be actual traditional IRA contributions you may have made over the years.

“Contributions you made to employer-provided 401(k) and 457 plans were not taxed by the State of New Jersey at the time of contribution, nor are employer contributions, and therefore are taxable upon distribution even if they are now coming from a rollover IRA,” Gallo said.

Therefore, he said, the only calculation you need to be concerned with is the total of IRA contributions you made.

If you were covered by an employer-qualified plan most of your working career, these contributions may represent a small portion of your overall current IRA balance, Gallo said.

“If you do not have this information in your records you most estimate the amount to the best of your ability,” he said. “For example, if you know you always made the maximum contribution allowed, the annual limits by year are available online and you can do the math.”

Keep in mind that New Jersey also allows for a pension exclusion. For 2018, it’s $60,000 for married couples filing jointly and $45,000 for single tax filers as long as your total income is $100,000 or less.

“So it is quite possible that if you are just taking Required Minimum Distributions, the amount that you estimate to be taxable would be eligible for the pension exclusion and therefore be tax-free anyway,” Gallo said.

Email your questions to moc.p1566187879leHye1566187879noMJN1566187879@ksA1566187879.

This story was originally published on April 11, 2019. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.