State Tax basis in IRA, Roth, HSA and 403B

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a_movable_life
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State Tax basis in IRA, Roth, HSA and 403B

Post by a_movable_life » Fri Apr 19, 2019 9:29 am

Hello Everyone:

I read the very detailed "Fidelity as a one stop shop" thread. My eventual goal at the end of the year is to move everything to Fidelity. I have money all over the place partially due to chasing bonuses. Which I probably am going to stop doing for simplicity and I am tired of forgetting passwords. I had a Schwab account which helped me save at least 200 on ATM fees when I was in Mexico for 6 months.

The eventual goal may be to roll everything into my I401K. I don't think I will be doing backdoor Roth anytime soon, and I probably will never be doing the additional in-service Roth contributions. (Mega Backdoor) Which I would then need to consolidate it all into the 401k.

I'd like some feedback about best practices for dealing with that NJ does not give tax deferment to 403B, Ded IRA, and HSA accounts. Neither does PA which is also on the short list of places I was considering moving to. I right now have very low income, and have been doing rollovers. I have saved all my tax returns and will continue to do so since the W-2's and the various forms have the basis on them.

I have one rollover IRA I call the "Sausage" account with mixed taxed and untaxed basis since some of it was contributed when I was working for NYS, some of it was 401K in NJ (not taxed), and some of it is a 403B from a non-profit. I've been rolling this over to push my income above the ACA floor. I'm currently a resident of SD and travel full time so I don't pay state income taxes on the rollovers. I may not finish doing these rollovers before I stop travelling full time.

I then also have a Rollover IRA which is all 403B (No Fed, NJ State at about 6%) when I was working full time about 90k/yr. and Deductible IRA contributions (No Fed, NJ state at about 2-3%) when I was working part time.

The 401k funds are separate, and not taxed by NJ when I have returned 3x to work there temporarily. The income for the deductible IRA is still taxed by NJ.

Is there a good reference for this? Should I be keeping a spreadsheet of: Year, Fed Rate, State Rate, IRS tax paid, Which State paid, and then how much? I think this is all pull-able from the returns, but the rates are in the instructions.

I'm thinking I will be doing the 62/65 year old to 70 year old rollovers if all goes to plan. So at that point I'll need the basis information. Which will be 25 years from now.

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grabiner
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Re: State Tax basis in IRA, Roth, HSA and 403B

Post by grabiner » Fri Apr 19, 2019 11:08 am

You don't need to keep track of tax paid, only basis. As far as NJ is concerned, all of your 403(b) contributions were already taxed by NJ, even if you weren't a NJ resident when you made them, or were a NJ resident but deducted tax from another state. Therefore, when you withdraw from the 403(b), you pay NJ tax only on the portion of the withdrawal that was earnings.

In the HSA, you need to keep track of the basis of individual holdings. When you sell something in the HSA, you have a NJ capital gain (unless you sell a NJ qualified investment fund such as a Treasury fund). If you receive a dividend and reinvest it in a mutual fund, you have another lot with its own basis.

If you hold a NJ qualified investment fund in your IRA, this is also exempt from NJ tax. I haven't seen guidance on how to keep track of this; logically, you should add any earnings or capital gains to the basis when you withdraw, but check with your NJ tax advisor.
Wiki David Grabiner

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a_movable_life
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Re: State Tax basis in IRA, Roth, HSA and 403B

Post by a_movable_life » Sat Apr 20, 2019 6:52 pm

Thanks. I had no idea about the HSA and keeping track of that.

I was mote thinking about if I move from NJ to another state with State Tax. For example PA which is 3.5% across the board. Do I get credit for the difference already paid to NJ? That was why I wondered if I needed to track the basis and the rate.

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grabiner
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Re: State Tax basis in IRA, Roth, HSA and 403B

Post by grabiner » Sun Apr 21, 2019 2:29 pm

money_bunny wrote:
Sat Apr 20, 2019 6:52 pm
Thanks. I had no idea about the HSA and keeping track of that.

I was mote thinking about if I move from NJ to another state with State Tax. For example PA which is 3.5% across the board. Do I get credit for the difference already paid to NJ? That was why I wondered if I needed to track the basis and the rate.
The only time that state tax paid to another state matters is when two states tax the same income in the same year; you can then take a credit.

But if you move between states, your new resident state usually computes income as if you had always been a resident. Thus, if you move to NJ with a 403(b) or IRA, you are considered to have already paid NJ tax on your contributions, and you do not owe NJ tax on the amount of the withdrawal that is a return of your contribution. (If you had filed a NJ non-resident tax return in those years, you would have reported the contribution as part of your gross income, and then paid zero NJ tax on that income since it wasn't earned in NJ). Conversely, if you move to another state with a NJ 403(b) or IRA, the other state does not care that you already paid NJ tax.
Wiki David Grabiner

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a_movable_life
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Re: State Tax basis in IRA, Roth, HSA and 403B

Post by a_movable_life » Thu May 09, 2019 8:25 am

One of these days I am going to move to one state, settle down and have a simple tax return again. Grabiner thank you for helping me understand that there is no “State tax basis” for States other than their own in this case.

Which makes sense as a mechanism to hopefully encourage the person to stay in the state and not move to Florida or another retiree haven.

This changes my approach, and saves me from keeping that Rollover account separate with the NJ money. I’ll just stick it all in my Solo 401K.

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