13 Nov How will N.J. tax my retirement income?

Q. I’m an RN in my late 30s and trying to be conscientious of retirement planning. I’ve read that all retirement income becomes taxable once you surpass $100,000, but what about Roth accounts? I’m trying to decide if New Jersey will give me a good deal or not taxwise.
— Planning ahead

A. We’re glad to see you’re thinking ahead about retirement.

You’re in your late 30s so you have plenty of time to keep saving. But the truth is that we have no idea how you’ll be taxed by the time you retire.

That’s why it’s smart to have a combination of savings — Roth and non-Roth accounts — to give you some options when you do finally retire.

So while we can’t tell you how your assets will be taxed in the future, let’s cover how they are taxed for retirees today.

As you noted, a qualified distribution from a Roth IRA is excludable from income and not included on a taxpayer’s New Jersey return, said Charles Ott, a certified public accountant with Levine, Jacobs & Co. in Livingston.

That means Roth IRA income, as long as it’s withdrawn properly, will not affect the pension exclusion calculation that starts with Total Income, Line 27, of your NJ-1040, Ott said.

Ott said other types of income that can be excluded are New Jersey municipal and federal government bond interest.

To qualify for the pension exclusion, you must be 62 or older or disabled on the last day of the year.

For the 2019 tax year, as long as you earn less than $100,000, those married filing jointly can exclude $80,000 and singles can exclude $60,000. In 2020, the numbers go up to $100,000 and $75,000 respectively.

“These are considered cliff brackets and exceeding these limitations will exclude a taxpayer from utilizing the pension exclusion entirely,” Ott said.

That’s the cutoff for those who earn $100,000 or more.

“Historically, traditional IRAs and 401(k)s were subject to tax in New Jersey and still are, but only if a taxpayer’s total income exceeds the limitations previously mentioned,” Ott said. “Like anything, we cannot predict future law changes, but the current tax environment for retirees is more promising than in previous years for taxpayers who claim income below these thresholds.”

Email your questions to .

This story was originally published on Nov. 13, 2019.

NJMoneyHelp.com 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.