On July 4, you wrote that the first $ 20,000 of the individual distribution of pension accounts was exempt from New York State income tax. Does that include a distribution that has been switched to a Roth IRA, sometimes called a “backdoor Roth conversion”?
New Yorkers over the age of 59 enjoy tax relief on their first $ 20,000 annual income from a deferred retirement tax bill, regardless of what they do with the money. Distribution is still subject to federal income tax. If you transferred $ 30,000 from a traditional IRA tax-deferred IRA to a Roth IRA, you would owe federal tax on the entire $ 30,000; but New York State taxes would only owe you $ 10,000.
The transfer is called Roth’s “conversion.” A Roth IRA created with a conversion is sometimes called a “backdoor Roth IRA”. Reason: You cannot directly contribute to a Roth IRA if you are single and have an income of $ 140,000 or more or if you are married and have an income of $ 208,000 or more. But there are no revenue limits for Roth conversions, for how many conversions you can make, or for the dollar amount that can be converted from a traditional IRA to a Roth IRA. (In contrast, the maximum annual direct Roth contribution is $ 6,000 for people under 50, and $ 7,000 for people over 50.)
All withdrawals from the Roth IRA are tax-free after you turn 59½ and have an account for at least five years. But if Roth was created with a conversion you did when you were under the age of 59, you will owe a 10% early withdrawal penalty for withdrawals within five years of the conversion date.
New Yorkers over the age of 59 for no reason pay state income tax of up to $ 20,000 a year, distributed from a traditional IRA.
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