15 Apr Will my IRA make me ineligible for the Senior Freeze?

Q. I have a question about the Senior Freeze. My base year property taxes are $6,000. My current property tax assessment is $10,000, making me eligible for a reimbursement of $4,000. In order to save on future taxes, I could convert my IRA to a Roth, but that would make me ineligible for the Senior Freeze. And when I have to take distributions from my IRA, I would also be over the income limit. Am I stuck with a new base year of $10,000 under both scenarios?
— Confused

A. Let’s go over how the Senior Freeze works.

This property tax benefit is available to New Jersey residents age 65 or older or who are receiving federal Social Security disability benefit payments as of Dec. 31, 2019.

Additionally, you must have lived in New Jersey for the last 10 years either as a homeowner or a renter, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

She said there is also a three-year residency requirement.

“Generally, in order to be eligible, you must have lived in your home prior to Dec. 31, 2016 and remained in the home through Dec. 21, 2020,” she said. “Property tax payments or mobile home site fees must be up-to-date.”.

The total income limit for 2019 is $91,505 and for 2020 it is $92,969, she said. This limit applies regardless of your marital or civil union status as long as you both lived in the same household as of Dec. 31, she said.

Mott said once a resident is enrolled in the program, they will receive a personalized copy of a form PTR-2 that must be updated to reflect current income and property tax information. The completed form must include copies of property tax bills along with proof of payment. All applications must be filed on or before Oct. 31, 2022, she said.

“In the event your income exceeds the allowed limit and you are not able to file an application, the process of determining your base tax rate will start anew with the next application year that you qualify,” she said. “All payments made going forward will be calculated using the revised base.

Bear in mind that the income qualification is based on the two most recent years of tax return data.

While converting the IRA may allow you to save on income taxes down the road, you should consult with a tax advisor to determine whether a full conversion will actually cost you more than what you might save over time as a result of the differences in the tax rate applied to the conversion versus the rate you would pay with a regular required distribution, Mott said

Factored into this evaluation should be the potential loss of $4,000 or more in Senior Freeze payments that you would forego as a result of the conversion, she said.

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This story was originally published on April 15, 2022.

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