30 Jul Will my retirement withdrawals be taxed by N.J.?
Q. I retired from the federal government on July 31, 2019. I received $21,293 in Social Security, which I understand is not taxed in New Jersey. My income up until my retirement date was $36,249. I received $6,256 in pension payments after that date. I also did a $25,000 withdrawal from the Thrift Savings Plan. The contributions were exempt from federal taxes until withdrawal but not exempt from state taxes. I would be claiming married filing jointly. My wife had an income of $30,816. The big question: Should that $25,000 withdrawal be reported as income since it was already subject to New Jersey tax when the contributions were made? I’m older than 62.
A. Congratulations on your recent retirement.
Let’s tackle your various sources of income post retirement.
First, you are correct that Social Security benefits received are not taxable on your state return, while your pension plan distributions of $6,256 most likely are, said Cynthia Fusillo, a certified public accountant with Lassus Wherley, a subsidiary of Peapack-Gladstone Bank, in New Providence.
Of course, your salary pre-retirement is taxable.
Fusillo said Thrift Savings Plan contributions are taxed when made. in other words, they are not salary deferrals for New Jersey tax purposes.
“Therefore, when you receive a distribution from your Thrift Savings Plan, that distribution will not be reportable on your New Jersey return since it’s already been taxed,” she said. “This is unlike a 401(k) plan which is a recognized salary deferral mechanism for New Jersey tax purposes.”
For the 2019 tax year, the retirement income exclusion is up to $80,000 for qualifying taxpayers, and that amount goes up to $100,000 for 2020.
The key is that your total income can’t be above $100,000 to qualify, she said.
Email your questions to moc.p1596921006leHye1596921006noMJN1596921006@ksA1596921006.
This story was originally published on July 30, 2020.
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.