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Any States Tax Roths?
Old 04-30-2012, 03:52 PM   #1
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Any States Tax Roths?

(I couldn't find the answer in Search)

Are there any states that charge state income tax, or the equivilant, on Roth distributions?

Illinois does not yet charge any state income tax on any qualified pensions or IRA's, but that may change in the future...
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Old 04-30-2012, 04:29 PM   #2
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I'm pretty sure the answer is: not yet. I think the states know there would be a major exodus of retirees, many of them fairly affluent, if they tried this.
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Old 04-30-2012, 04:31 PM   #3
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It's been a while since I lived in Pennsylvania... but they had a flat tax - so all income was taxed- even 401k contributions.

Not sure about distributions, though.
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Old 04-30-2012, 06:53 PM   #4
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Don't most states with income tax start out with your federal taxable income and start their calculations from there?

That ought to obviate the inclusion of Roth distributions, no?
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Old 05-01-2012, 12:34 AM   #5
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A very cursory Google search found no obvious cases of states taxing qualified Roth distributions. Having said that, there may well be exceptions (harder to prove a negative without lots more research, and it doesn't apply to me, so...) SPENDING your hard-earned Roth distribution within a state's borders WILL subject you to all applicable sales, VAT, excise, etc. taxes. So there's that.

I'm not aware of any Federal prohibition of state-taxing of Roth distributions, so YMMV.
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Old 05-01-2012, 09:11 AM   #6
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and it is important to remember, IRA distributions are recorded "above the line." In which case, roth distributions are recorded as a big fat zero (and TIRA will record as the amount of the distribution) for the AGI calculation. Every state I have ever filed with uses your federal AGI as a basis for taxation. But, states are suppose to get a copy of that 1099-whatever it is (R?). So I'm sure it's an easy fix if a state wanted to get at it.
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Old 05-01-2012, 10:04 AM   #7
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PA will tax the earnings portion (not the principle contribution) of early Roth distributions (if your less than 59.5 years old). If over 59.5 years old, PA does not tax the distributions at all.
For early distributions, you distribution is considered a return of contribution first, then any additional funds is earnings.
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Old 05-01-2012, 09:36 PM   #8
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Quote:
Originally Posted by braumeister View Post
Don't most states with income tax start out with your federal taxable income and start their calculations from there?
Ohio starts with Federal AGI, which is income before the itemized or standard deductions.
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Old 05-02-2012, 07:47 AM   #9
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Assuming one retires in the same state where you worked with an income tax... This would raise the issue that the basis of the Roth has already been taxed, so subjecting the entire withdrawal would mean double taxation on a portion. Subjecting only the gains to tax means you have to keep track of the basis, which hasn't been done to date. You'd need another form like the 8606 for traditional IRAs that combine both taxed and not taxed portions. Not saying it might not happen, knowing that states are likely on the hunt for new revenue sources, but it would take some effort to implement.
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Old 05-02-2012, 09:02 AM   #10
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Quote:
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Assuming one retires in the same state where you worked with an income tax... This would raise the issue that the basis of the Roth has already been taxed, so subjecting the entire withdrawal would mean double taxation on a portion. Subjecting only the gains to tax means you have to keep track of the basis, which hasn't been done to date. You'd need another form like the 8606 for traditional IRAs that combine both taxed and not taxed portions. Not saying it might not happen, knowing that states are likely on the hunt for new revenue sources, but it would take some effort to implement.
Actually Pt III of F8606 does keep track of basis from contributions on line 22
and from conversions on line 24. Unfortunately it is not a self contained form for Roths (unlike TIRAs) since some of the info needed may be in your long discarded info (see instructions for those lines).
http://www.irs.gov/pub/irs-pdf/f8606.pdf
http://www.irs.gov/pub/irs-pdf/i8606.pdf
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Old 05-02-2012, 09:31 AM   #11
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Quote:
Originally Posted by oldphd View Post
Assuming one retires in the same state where you worked with an income tax... This would raise the issue that the basis of the Roth has already been taxed, so subjecting the entire withdrawal would mean double taxation on a portion. Subjecting only the gains to tax means you have to keep track of the basis, which hasn't been done to date. You'd need another form like the 8606 for traditional IRAs that combine both taxed and not taxed portions. Not saying it might not happen, knowing that states are likely on the hunt for new revenue sources, but it would take some effort to implement.
everyone really should be keeping track of their basis in their retirement accounts. using the "highly" anticipated 5498's that are impending later this month is a good way to do that.

As I pointed out, states get a copy of the 1099-R. So implementing would be a breeze. Implementing without temper tantrums from the ol' fogies, now that is challenge for just about anyone, including mother nature.
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Old 05-02-2012, 10:08 AM   #12
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Originally Posted by rodi View Post
It's been a while since I lived in Pennsylvania... but they had a flat tax - so all income was taxed- even 401k contributions.

Not sure about distributions, though.
PA here (and retired). No, the state gets their "pound of flesh" on the front end (many states don't).

You have no tax on retirement distributions.

The advantage is that many years of gains (at least for DW/myself) is not taxed on the state/local level.

The only tax we pay is federal, on those deferred tax funds. That's why our total tax paid is much lower than most (pay me now, pay me later - we paid at time of income received)...
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