10 Aug I sold some investments. Are they taxable in New Jersey?
Q. As reported on my 1099-R, some of my 2019 income was from traditional IRAs invested in mutual funds which I cashed in. Each mutual fund derived a percentage of its total investment income from U.S. government obligations. Is the percentage of my income from those funds taxable by the state of New Jersey? As reported on my 1099-B in 2019, I also sold mutual funds unrelated to my IRAs that had a stake in U.S. government obligations. Are these taxable by New Jersey?
A. Thanks for your question.
If the funds in your IRA are all the result of traditional IRA contributions, meaning there are no rollover funds from 401(k) plans or corporate pensions plans, then only the earnings included in the payments received are taxable by the state, said Steve Gallo, a certified public accountant and personal financial specialist with U.S. Financial Services in Fairfield.
He said this is the case because New Jersey does not allow a deduction for traditional IRA payments when made. Contributions were made with after-tax dollars as far as the state is concerned, he said.
“N.J. exempts all earnings derived from U.S. savings bonds as well as U.S. Treasury Department obligations such as T-Bills and Treasury bonds and notes,” Gallo said. “So therefore, to the extent that the earnings received as part of your distributions are derived from the sources mentioned above, they would not be taxable to the state of N.J.”
As for the funds that were not inside an IRA, any income derived from U.S. government obligations are exempt from income tax in the state, Gallo said.
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This story was originally published on Aug. 10, 2020.
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