What will this withdrawal mean for the pension exclusion?

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Q. I am over age 60 and had the Roth for over 5 years. I know the withdrawal is tax-free, but does this withdrawal from the Roth show as income on my state return? How does it count as income in determining if I am over the $100,000 income threshold to qualify for the pension exclusion?
— Trying to save

A. Thanks for your question.

If the distribution from the Roth IRA was a qualified distribution as defined for New Jersey income tax purposes, then the distribution is not required to be reported anywhere on the New Jersey personal income tax return, said David Ritter, chair of the tax practice at Brach Eichler in Roseland.

“A distribution must be qualified for federal income tax purposes, including the five-year rule, and must meet one of four requirements under New Jersey law,” he said. “One of the requirements is that the individual be over the age of 60.”

Ritter said from the scenario you present, the distribution is a qualified distribution and would not appear anywhere on your income tax return.

“The instructions for the pension exclusion require the income reported on line 27 to be $100,000 or less for full time residents,” Ritter said. “Since the Roth qualified distribution does not appear on the income tax return, it would not be included on line 27.”

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This story was originally published on Oct. 22, 2020.

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