UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev Thread | Next Thread
Author: HardlyRich Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75797  
Subject: Roth IRA and State Laws Date: 10/8/1998 1:33 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I am new to this board and haven't seen any posts on this subject so I'll ask now.

I live in a Massachusettes which has a state income tax. From what I have been able to discern from the state law at URL:

http://www.magnet.state.ma.us/dor/rul%5Freg/tir/98/tir98_2.htm

...Massachusettes does not appear to even recognize the Roth as an IRA. Thus any gains or dividens earned are taxable at the state level in the year they occur (just as if its a regular investment account).

Under this condition, would it still be wise to convert my Rollover IRA to a Roth if the only tax benefits are at the Federal level and I must pay all state taxes as they occur?

Also, I had opened a Roth IRA in the beginning of the year and contributed my $2000. Should I continue with this account, making yearly contributions of $2000 even though the state will treat the account as any regular investment account.

Are other states recognizing Roth IRAs?

If my interpretation of Massachusettes law is incorrect then let me know.

-HardlyRich
Print the post Back To Top
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5945 of 75797
Subject: Re: Roth IRA and State Laws Date: 10/8/1998 5:10 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Greetings, HardlyRich, and welcome. You asked:

I am new to this board and haven't seen any posts on this subject so I'll ask now.

I live in a Massachusettes which has a state income tax. From what I have been able to discern from the state law at URL:

http://www.magnet.state.ma.us/dor/rul%5Freg/tir/98/tir98_2.htm

...Massachusettes does not appear to even recognize the Roth as an IRA. Thus any gains or dividens earned are taxable at the state level in the year they occur (just as if its a regular investment account).

Under this condition, would it still be wise to convert my Rollover IRA to a Roth if the only tax benefits are at the Federal level and I must pay all state taxes as they occur?

Also, I had opened a Roth IRA in the beginning of the year and contributed my $2000. Should I continue with this account, making yearly contributions of $2000 even though the state will treat the account as any regular investment account.

Are other states recognizing Roth IRAs?

If my interpretation of Massachusettes law is incorrect then let me know.


There are some 19 states that do not conform to federal law with regard to taxation of the Roth IRA. Massachusetts is one of these states. Most of the 19 non-confirming states are expected to pass legislation adopting the federal position on taxation, but I don't know if MA is one of them. You'll have to check with your state legislature on that.

You'll also have to examine your own tax situation to see if a conversion and/or contributory Roth IRA makes sense in your case. Obviously, it certainly isn't as an attractive option as it is for someone who can avoid both federal and state income taxes.

Regards….Pixy


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5947 of 75797
Subject: Re: Roth IRA and State Laws Date: 10/8/1998 8:50 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
In response to a question regarding state taxation of Roth IRAs, TMFPixy responded:

There are some 19 states that do not conform to federal law with regard to taxation of the Roth IRA. Massachusetts is one of these states. Most of the 19 non-confirming states are expected to pass legislation adopting the federal position on taxation, but I don't know if MA is one of them. You'll have to check with your state legislature on that.

I reply:

Correct me if I'm wrong, but isn't there another option? As I understand the law, what matters is where you live when you take the distribution, not when you deposit the money into the Roth IRA. So if HardlyRich doesn't plan to live in Massachusetts in retirement, he shouldn't concern himself with Massachusetts tax law, but with the law of his intended state of retirement.

And by the way, there's no reason to restrict lobbying on this issue to the state level. If the federal government chooses to, it can require states to treat qualified Roth withdrawals as tax-exempt. IMHO, it's a better use of Washington's time than obsessing about stains and blue dresses. --Bob

Print the post Back To Top
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5951 of 75797
Subject: Re: Roth IRA and State Laws Date: 10/9/1998 8:09 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Bob78164 writes:

In response to a question regarding state taxation of Roth IRAs, TMFPixy responded:

There are some 19 states that do not conform to federal law with regard to taxation of the Roth IRA. Massachusetts is one of these states. Most of the 19 non-confirming states are expected to pass legislation adopting the federal position on taxation, but I don't know if MA is one of them. You'll have to check with your state legislature on that.

I reply:

Correct me if I'm wrong, but isn't there another option? As I understand the law, what matters is where you live when you take the distribution, not when you deposit the money into the Roth IRA. So if HardlyRich doesn't plan to live in Massachusetts in retirement, he shouldn't concern himself with Massachusetts tax law, but with the law of his intended state of retirement.


And by the way, there's no reason to restrict lobbying on this issue to the state level. If the federal government chooses to, it can require states to treat qualified Roth withdrawals as tax-exempt. IMHO, it's a better use of Washington's time than obsessing about stains and blue dresses. -Bob


You are correct that moving from a state that taxes the Roth to one that doesn't prior to making a withdrawal would solve the problem. And perhaps Congress could enact a law exempting the growth in a Roth from state taxation as well. But I see two things working against either solution. First, despite publicity about massive retiree relocation to sunnier climes, AARP and other studies show that over 90% of retirees reside in the same county as they did while working. Thus, relocation to save taxes doesn't seem like a viable solution. Second, interference with a state's ability to raise taxes would be seen as an infringement of states' rights. Congress shies away from that, so it's unlikely they would pass any law to further protect the Roth.

Regards….Pixy


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: HardlyRich Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5954 of 75797
Subject: Re: Roth IRA and State Laws Date: 10/9/1998 9:38 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Bob78164 wrote:

Correct me if I'm wrong, but isn't there another option? As I understand the law, what matters is where you live when you take the distribution, not when you deposit the money into the Roth IRA. So if HardlyRich doesn't plan to live in Massachusetts in retirement, he shouldn't concern himself with Massachusetts tax law, but with the law of his intended state of retirement.

And by the way, there's no reason to restrict lobbying on this issue to the state level. If the federal government chooses to, it can require states to treat qualified Roth withdrawals as tax-exempt. IMHO, it's a better use of Washington's time than obsessing about stains and blue dresses. --Bob

I reply:

Your reply is correct only if you buy and hold your securities until retirement. Since the state of MA does not even recognize the Roth as an IRA, any capital gains or dividen income will be taxed by the state in the year they occur. Thus whenever you sell a security in a Roth at a gain, you'll have to pay state capital gains taxes even though you are not withdrawing the money from the Roth account. Massachusettes treats the Roth just as any normal investment account.

-HardlyRich


Print the post Back To Top
Author: Zathrus Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5957 of 75797
Subject: Re: Roth IRA and State Laws Date: 10/9/1998 9:55 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
There are some 19 states that do not conform to federal law with regard to taxation of the Roth IRA.

Ah, which states are these? I don't believe Georgia is one, since I haven't heard anyone around here carping about it, but it would be nice to know.

Zathrus

Print the post Back To Top
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5959 of 75797
Subject: Re: Roth IRA and State Laws Date: 10/9/1998 4:49 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Zathrus wrote:

There are some 19 states that do not conform to federal law with regard to taxation of the Roth IRA.

Ah, which states are these? I don't believe Georgia is one, since I haven't heard anyone around here carping about it, but it would be nice to know.


Well, in March they were: AL, AZ, AR, GA, HI, ID, IN, IA, KY, ME, MA, MN, MS, NJ, NC, OR, SC, WV, WI and DC. Since then, legislation has been introduced in a number of these states to have their taxes agree with the federal regarding Roth IRAs. KY is one, but I don't know any others. If you want info about GA, you'll have to ask your states's department of taxation.

Regards....Pixy

Print the post Back To Top
Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5961 of 75797
Subject: Re: Roth IRA and State Laws Date: 10/9/1998 8:26 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
In response to a question regarding state taxation of a Roth IRA, TMFPixy replied (in part):

If you want info about GA, you'll have to ask your states's department of taxation.

I add:

You might also try the Tax Strategies board; TMFTaxes often has information that is complementary (not to mention complimentary ;-)) to that of TMFPixy. --Bob

Print the post Back To Top
Author: HardlyRich Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5969 of 75797
Subject: Re: Roth IRA and State Laws Date: 10/10/1998 11:45 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Here's a follow up to my original post.

After writing to the Massachusettes Department of Revenue, I found out that MA recently changed their laws regarding the Roth by adopting the Federal Law.

For anyone interested in an official document on this, you can reference page 8 of Massachusettes's current Taxpayer Advisory Bulletin regarding Roth IRA's. It has a summary of the tax changes passed this summer.

Below you will find the address on their website containing this information. You will need Adobe Acrobat in order to read and print this file.

http://www.state.ma.us/dor/publ/tab/sept98.pdf


So it looks like MA can be removed from the list of 19 states not recognizing the Roth. If my state did not adopt the Federal law I don't think I would consider converting to one.

-HardlyRich



Print the post Back To Top
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5971 of 75797
Subject: Re: Roth IRA and State Laws Date: 10/10/1998 12:32 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
HardlyRich wrote:

So it looks like MA can be removed from the list of 19 states not recognizing the Roth.

Thanks for the info. I learned that KY did, too, so there's a second that can be deleted.

Regards...Pixy

Print the post Back To Top
Author: TchrP Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5973 of 75797
Subject: Re: Roth IRA and State Laws Date: 10/10/1998 3:11 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
HardlyRich,

What a relief! I had been following the Mass. tax law changes, but I didn't remember anything specific about Roth IRAs. The part I was attending to was the repeal of the special tax on dividends in regular taxable accounts - prior to the change, Massachusetts taxed investment dividends at approximately double the rate of ordinary income, but now they're taxed at the same rate as other income.

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev Thread | Next Thread
Advertisement