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Stephanie B.
Stephanie B., Enrolled Agent
Category: Tax
Satisfied Customers: 555
Experience:  MTax, EA, QuickBooks Proadvisor. Over 10 years accounting and tax experience specializing in individual and small business.
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I converted my 401k to a Traditional IRA to a Roth IRA in 2010.

Customer Question

I converted my 401k to a Traditional IRA to a Roth IRA in 2010. I'm reveiwing my taxes from that year and want to know: Do I need to pay Pennsylvania state tax of 3.07% on my Roth IRA conversion/gross distribution? I received a 1099-R form stating my gross distribution. My distribution code is 2.
Submitted: 2 years ago.
Category: Tax
Expert:  R. Klein, EA replied 2 years ago.

Randalltax :

You are liable for PA state tax on your 401K Conversion.

Randalltax :

Did you choose to pay your federal tax on this conversion in 2010 or did you elect the 2011/2012 tax method?

Customer:

I paid it in 2010 when the conversion happened

Randalltax :

Then the tax is (was) due April, 2011.

Expert:  Stephanie B. replied 2 years ago.

Thank you for using Just Answer.

 

Another expert here.

 

Pennsylvania taxes your 401K when you put the money into the fund while federal excludes the 401K contribution. Hence, when you converted your 401K to a traditional, this would have been a tax free event on your federal return because they are both pretax types of funds. However, when you converted the traditional to a Roth, you would have owed tax on your Federal return because tax had not been paid on the contributions. Since Pennsylvania already taxed the 401K when you made the contributions, you would owe no more tax to PA when you converted the now Traditional IRA to a Roth.

I copied and pasted this from the PA Income tax booklet found at http://www.revenue.state.pa.us/portal/server.pt/community/personal_income_tax/14692/2010/666236

 

Retirement, Pensions, and Deferred Compensation

  • Eligible Employer-Sponsored Retirement Plans

Pennsylvania does not impose income tax on payments

you receive that are commonly recognized retirement

benefits distributed from eligible employer-sponsored

retirement plans. Eligible employer-sponsored retirement

plans can, but do not necessarily, include employer-

sponsored deferred compensation plans; pension or

profit sharing plans; 401(k) plans; thrift plans; thrift savings

plans; and employee welfare plans. Ask your

employer or plan administrator if your employer's retirement

plan is an eligible plan for PA income tax purposes.

Eligible non-employer-sponsored retirement plans can,

but do not necessarily, include Individual Retirement

Accounts (IRAs) and Roth IRAs.

  • Contributions

The contributions you make to your employer's sponsored

retirement plan are PA-taxable compensation,

even if your contributions are not taxable for federal

purposes or included in the state wages shown on

your W-2.

  • Distributions from Employer-Sponsored Qualified

Retirement or Deferred Compensation Programs

All amounts you receive from your employer's PA qualifying

retirement or old age benefit plan are taxable in

the year you receive the payments, except:

1. Payments you receive after you qualify for retirement

and retire.

2. Payments you receive that you rollover into another

deferred payment program or retirement IRA, but

only when the transferred amounts are not taxable

income for federal purposes.

3. Distributions from an employer-sponsored deferred

compensation plan that represent your previous

contributions.

4. Payments paid to the estate or designated beneficiary

upon an employee's death are not PA-taxable

income on the employee's final PA-40 or on the

decedent's estate or trust PA-41, PA Fiduciary

Income Tax Return or on the beneficiary's PA-40.

5. All distributions (regardless of the distribution code

reported in Box 7 of the 1099-R) from the State

Employees' Retirement System, the Pennsylvania

School Employees' Retirement System, the

Pennsylvania Municipal Employees' Retirement

System, and the U.S. Civil Service Commission

Retirement Disability Plan.

6. Retired or retainer pay of a member or former member

of a uniform service computed under Chapter 71

of Title 10, U.S. Code as amended.

 

 

If this answers your question, please click the accept button as this is the only way we get paid for the assistance we provide to you.

If you need more clarification, please let me know. If I am not available at the time, I will be.

I appreciate the opportunity to assist you and I look forward to your response.

Stephanie

Stephanie B., Enrolled Agent
Category: Tax
Satisfied Customers: 555
Experience: MTax, EA, QuickBooks Proadvisor. Over 10 years accounting and tax experience specializing in individual and small business.
Stephanie B. and 8 other Tax Specialists are ready to help you

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Stephanie B.
Stephanie B.
Tax Professional
555 Satisfied Customers
MTax, EA, QuickBooks Proadvisor. Over 10 years accounting and tax experience specializing in individual and small business.