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Roth IRAs

The Ó£»¨ÊÓƵ Income Tax treatment of Roth IRAs conforms to the federal treatment. Direct contributions to Roth IRAs are not deductible and qualified distributions from Roth IRAs are not includable in Ó£»¨ÊÓƵ income.

Qualified taxpayers, regardless of age, can establish a Roth IRA. Contributions can be made either directly or rolled over from a traditional IRA. Contact the Internal Revenue Service to see if you qualify.

Rollovers. You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA if the withdrawal satisfies the federal requirements. In most cases, your contributions to a traditional IRA were already taxed by Ó£»¨ÊÓƵ and are not taxable when withdrawn. However, any amounts you roll over from a traditional IRA to a Roth IRA that were not previously taxed by New Jersey must be included as income on your Ó£»¨ÊÓƵ return the year they are withdrawn from the traditional IRA. This includes accumulated earnings and other amounts such as a rollover distribution from an employer's 401(k) Plan (both principal and earnings). If you are filing a resident return, you must report both the taxable and excludable portions of the distribution on the separate lines provided on Form NJ-1040.

Qualified Distributions From a Roth IRA

A qualified distribution from a Roth IRA is excludable from income and should not be reported anywhere on the Ó£»¨ÊÓƵ tax return. A qualified distribution is one made after the five-year period beginning with the first tax year for which a contribution was made to the IRA, and that is:

• Made on or after the date the individual reaches age 59½; or
• Made to a beneficiary (or the individual's estate) after the individual's death; or
• Made because the individual became disabled; or
• Made as a qualified first-time homebuyer distribution as defined by the Internal Revenue Code.
  
  

A distribution will not be treated as a qualified distribution if it does not meet the Internal Revenue Service's five-year rule. For example, if you established a Roth IRA in 2019, the first year you could receive a qualified distribution would be 2024. Contact the for more information on the five-year rule.

Nonqualified Distributions From a Roth IRA

A nonqualified distribution is one not made under one of the four circumstances described in "Qualified Distributions," or one that does not satisfy the IRS's five-year rule. A distribution that is considered nonqualified for federal income tax purposes is also considered nonqualified for Ó£»¨ÊÓƵ purposes. Because nonqualified distributions are reported as pension and annuity income, the pension and/or other retirement income exclusions may apply.

More Information

See Technical Bulletin TB-44 , Roth IRAs, and Tax Topic Bulletin GIT-1&2 , Retirement Income.