30 Sep If I do a Roth conversion, how will N.J. treat it for taxes?

Q. I am considering doing a Roth conversion. My traditional IRA has $15,000 in contributions and $1,000 earnings. For my New Jersey taxes, are only my gains taxable? I’m also considering rolling over my entire 401(k) from a previous employer to an existing traditional IRA account — with only IRA contributions and earnings — that I have. If I do a Roth conversion on a traditional IRA account containing rolled over 401(k) money, how would my Roth conversion be taxed in New Jersey?
— Investor

A. Timing matters.

When you convert a traditional IRA to a Roth, you will pay taxes on the earnings.

But when you’re dealing with a 401(k) plan, for New Jersey tax purposes, contributions may be treated differently depending on when you made them.

Contributions that employees make to 401(k) plans from their wages were made pre-tax as of Jan. 1, 1984 for New Jersey tax purposes, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

Distributions from 401(k) plans, including contributions made on or after Jan. 1, 1984, are fully taxable because the contributions were not taxed when they were made and the earnings are taxable, he said.

“If you made contributions to a 401(k) plan before Jan. 1, 1984, the amount of your distribution that represents after-tax contributions will be tax-free for New Jersey purposes,” he said. “I hope you keep good records.”

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This story was originally published in September 2024.

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