Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
Unrecovered Contributions
Posted by: stewartb, February 22, 2017 11:53AM
NJ tax returns has a "Worksheet C IRA Withdrawals" used for calculating the state's taxable portion of your IRA distribution. I find one line on the worksheet confusing. They ask for last year's "Unrecovered Contributions".

The Sate of NJ defines it as follows:

This difference is the amount of contributions that have been recovered thus far. D. Subtract the amount of recovered contributions (C) from the total amount of contributions made to the IRA. This is the amount of unrecovered contributions to enter on line 4b of part i. (Keep for your records)

To my thinking this means (if it's the 2nd or more year of IRA withdrawals) unrecovered contributions are all previous years IRA withdrawals that have been previously taxed.

If it's only the 2nd year of withdrawals it would be last years IRA withdrawn which was taxed. If its the 3rd year of IRA withdrawals, it would the the last two years of IRA withdrawals, which were previously taxed, added together and so one. Each year adding all previous years IRA withdrawals, which were taxed.

Is that correct?

Re: Unrecovered Contributions
Posted by: kaneohe, February 22, 2017 02:41PM
[www.state.nj.us]

Have you looked at the examples (toward the end) here?
It sounds similar to F8606 for federal taxes when you are making non-deductible contributions......since NJ apparently doesn't allow you a deduction for TIRA contributions.

Unrecovered contributions sounds like NJ-speak for basis in IRS jargon. It seems easier to talk about the first yr. of iRA withdrawals .......see the first example in the link above. The unrecovered contributions are your total contributions(T) to the TIRA (which were previously taxed by NJ.) When you take the first withdrawal, part of it is considered to be from the contribution (X $) and part from the earnings (Y $).
Your recovered contributions are X and your unrecovered contributions are (T less X)...... assuming you didn't make any new contributions.

For subsequent yrs, the worksheet will use current yr numbers and also numbers from the previous worksheet so you can keep track of the unrecovered contributions.

Re: Unrecovered Contributions
Posted by: stewartb, February 22, 2017 03:50PM
This is all very confusing, so let me give you my case and see if I have it right:
This is the 2nd year I'll be receiving a RMD from an inherited IRA.
The first year's RMD was 100% taxable on my 2015 NJ 1040.
I'm assuming unrecovered contributions to be previous years' RMDs that were taxed. So for 2016 my unrecovered contributions would be last years RMD. For the next year, 2017 my unrecovered contributions would be my 2015 & my 2016 RMD's which were previously taxed. For all future years NJ returns, unrecovered contributions would then be all previuos years RMDs that were previously taxed added together.
Is that correct?

Re: Unrecovered Contributions
Posted by: kaneohe, February 22, 2017 04:34PM
I don't know if inherited IRAs are any different but I'll just relate to a normal TIRA that you own.
You contribute 5K to TIRA, deduct it on federal return, but can't deduct it on NJ return. It hasn't been taxed on Federal but has been taxed by NJ. It has no growth.

Now you withdraw 1K. It hasn't been taxed by Federal so you pay taxes on 1K to the feds. It has already been taxed by NJ so is not taxed by them. The money has been taxed only once by both Fed and NJ.

You have recovered 1K of your 5K contributions according to NJ and the unrecovered contributions are 4K.

My understanding is that contributions are not taxed by NJ when withdrawn since they were taxed when contributed.

Re: Unrecovered Contributions
Posted by: kaneohe, February 22, 2017 04:34PM
I don't know if inherited IRAs are any different but I'll just relate to a normal TIRA that you own.
You contribute 5K to TIRA, deduct it on federal return, but can't deduct it on NJ return. It hasn't been taxed on Federal but has been taxed by NJ. It has no growth.

Now you withdraw 1K. It hasn't been taxed by Federal so you pay taxes on 1K to the feds. It has already been taxed by NJ so is not taxed by them. The money has been taxed only once by both Fed and NJ.

You have recovered 1K of your 5K contributions according to NJ and the unrecovered contributions are 4K.

My understanding is that contributions are not taxed by NJ when withdrawn since they were taxed when contributed.

Re: Unrecovered Contributions
Posted by: stewartb, February 22, 2017 05:23PM
Im asking if previous years RMDs (which were taxed of course) = unrecovered contributions ?

Re: Unrecovered Contributions
Posted by: kaneohe, February 22, 2017 05:40PM
You'll have to wait for Alan S. for the real story but if inherited IRAs are like normal TIRAs, I would have expected that their contributions were already taxed by NJ when the contributions were made, so when withdrawals are made, for NJ purposes part of the withdrawal is taxable (earnings) and part of the withdrawal is not taxable (contributions). The non-taxable part (contributions) is recovered contributions. The unrecovered contributions is the total contributions less any recovered contributions.

Your statement "that previous yrs RMDs (which were taxed
of course)" is confusing to me. Presumably part of it was taxed and part of it was not. Are you saying that all of it was taxed by NJ?

Re: Unrecovered Contributions
Posted by: stewartb, February 22, 2017 07:58PM
Your statement "that previous yrs RMDs (which were taxed
of course)" is confusing to me. Presumably part of it was taxed and part of it was not. Are you saying that all of it was taxed by NJ?

Yes I am and here's why and it has nothing to do whether its inherited or my own IRA:

Presumably every previous year's distribution, in this case inherited RMD, was already taxed because it was on last year's NJ 1040. It had to be listed, accounted for and therefore was taxed.

So if unrecovered contributions is made of previously taxed contributions, presumably all previously years taxed distributions are unrecovered contributions

Do you see that?

Re: Unrecovered Contributions
Posted by: kaneohe, February 22, 2017 08:08PM
I understand that every yrs Contribution was taxed by NJ. Therefore it should not be taxed as a Distribution. Do we agree on that?

Re: Unrecovered Contributions
Posted by: stewartb, February 22, 2017 09:16PM
I understand that every yrs Contribution was taxed by NJ. Therefore it should not be taxed as a Distribution. Do we agree on that?

Thats a given of course I agree. But we're talking about unrecovered contributions and to my thinking that would be any previous years' RMDs that were taxed in NJ. Correct?

Whatever happened to LJM in Fairlawn NJ?? lol Is he no longer here??


Re: Unrecovered Contributions
Posted by: kaneohe, February 22, 2017 09:36PM
The TIRA consists of contributions (that have been taxed by NJ) and earnings that have not been taxed by NJ.
Each distribution consists of both contributions and earnings. The earnings part of the distribution is taxed by NJ and the contribution part is not taxed by NJ. In my mind,the contribution part of the distribution is a recovered contribution. The unrecovered part of the contribution is still in the TIRA but gets smaller every yr.

Re: Unrecovered Contributions
Posted by: stewartb, February 22, 2017 10:26PM
I agree the unrecovered portion gets smaller every year. I have a formula to figure the taxable portion of my difstribution but Im still unclear about the full meaning of unrecovered contributions.

Taxable Portion Divided By Total Value X Distribution = Taxable Amount

Total Value: Value on 12/31 + Distribution

Taxable Portion: Total Value minus Previously Taxed Contributions

using the above formula I calculated taxable portion of this year's IRA RMD using previously Taxed Contributions What I think are unrecovered contributions)

And as you can see, with every passing year the taxable amount of the distribution decreases

Re: Unrecovered Contributions
Posted by: kaneohe, February 22, 2017 11:46PM
Words are fuzzy things. How about numbers......
You contribute 5K to TIRA and are a very conservative person so there is no growth.
1) Before you take any distributions, what is the amount of unrecovered contributions? Where is it?
2)You then take a 5K distribution. How much of the contributions have you recovered? Where is it?
How much of the contributions are unrecovered?


Re: Unrecovered Contributions
Posted by: stewartb, February 23, 2017 11:59AM
My own example:

Total Value means value of the IRA on 12/31 + IRA distributions for the year
15,730.09 + 717.82 = 16,447.91

Taxable Portion means the Total value of the IRA on 12/31 minus ALL previously taxed contributions. For 2016 this means 16,447.91 – last years RMD 2002.87 = 14,445.04

Taxable Portion divided by Total Value multiplied by Distribution (RMD) = Taxable Amount of this year’s withdrawal

14,445.04 divided by 16,447.91 = 0.8782295 mult.by 717.82 = 630.41069

$630.41 Line 19a of NJ 1040 Taxable Portion of this year’s withdrawal

However this does NOT tell me if my def of unrecovered contributions is correct

Where's LJM & Alan S these days? lol

Re: Unrecovered Contributions
Posted by: DeeDee, February 23, 2017 05:48PM
Where's LJM & Alan S these days?

I haven't seen a post from LJM for quite awhile. Alan is busy, so be patient.

Re: Unrecovered Contributions
Posted by: Benn, February 25, 2017 12:01AM
Some things seem unclear here. First of all, it should be understood that New Jersey does not offer any deductions for IRA contributions as does the IRS. Therefore, anyone who made IRA contributions in NJ that were deductible for Federal purposes will need to do separate calculations for Federal and NJ tax returns when distributions are received.

The following pertains to a traditional IRA of a New Jersey resident who is receiving distributions. It should be noted that the term "unrecovered contributions" refers to the total contributions made to IRA plans that were previously taxed by New Jersey, after subtracting all amounts from IRA distributions reported in all NJ tax returns on line 19b of form NJ-1040. Line 19b on the current form NJ-1040 is the amount of an IRA distribution that is not taxed by NJ because it represents a portion of contributions that were previously taxed by NJ when the contributions were originally made. The actual line number for this item may differ in NJ tax returns from several years back. The calculation of the taxable and nontaxable portions of a distribution is performed by NJ Worksheet "C" each year. After the first year that NJ Worksheet "C" is used, the results from Worksheet "C" will carry forward to the following year as inputs.

Thus, the term "unrecovered contributions" has the meaning of New Jersey basis. When the first distributions are made from an IRA in NJ that has "unrecovered contributions", the total of all contributions made to the IRA is entered. Hopefully a record was kept of this number. The worksheet will calculate the taxable and nontaxable portions for the distribution for the year. Then, in future years, Worksheet "C" will carry the remaining balance forward of the "unrecovered contributions". The functionality of NJ Worksheet "C" is similar to Federal from 8606, but with some variations.

Slight variations of the above would apply for IRA accounts that were originally acquired before becoming a NJ resident, and for inherited IRA accounts. Also variations would apply when a NJ IRA receives rollovers from a qualified plan or 403(b) account.

Re: Unrecovered Contributions
Posted by: stewartb, February 25, 2017 12:36AM
My thinking is that all previous year's distributions that were previously taxed, meaning were all subject to Worksheet C = unrecovered distributions. Thus if this is the 2nd year of RMD, last year's RMD, subject to Worksheet C = the sum of my unrecovered contributions for NJ tax purposes

Re: Unrecovered Contributions
Posted by: Benn, February 25, 2017 12:59AM
This is not the correct meaning. The term is Unrecovered CONTRIBUTIONS, not Unrecovered DISTRIBUTIONS.

In the year when the very first IRA distribution or withdrawal is received, the total of all IRA contributions ever made to the account is entered as "Unrecovered CONTRIBUTIONS" into NJ Worksheet "C", line 4a. You will need to find this value in your records or reconstruct it from earlier IRA account statements. The worksheet also calls this amount "contributions that were previously taxed". The meaning is that all IRA contributions were previously taxed by NJ, so this is the initial value of "Unrecovered Contributions". Note that you will be "recovering" your contributions a little bit each year as you receive your required minimum distributions. Each year you will receive back a portion of your contributions as part of each RMD, so the portion of each RMD representing your original contributions will not be taxed upon withdrawal. Worksheet "C" performs the calculation of the tax-free portion of each distribution or withdrawal. The taxable portion of each distribution is actually the portion representing earnings of the IRA account and not the amounts you originally contributed or deposited to the IRA.

After the first your of IRA distributions, The results generated by NJ Worksheet "C" will flow forward to the following year without reference to any historical records. After the first year line 4b and Part II will be used instead of line 4a in Worksheet "C". At this point the only inputs will be from the previous Worksheet "C" and any current year activity.

Re: Unrecovered Contributions
Posted by: stewartb, February 25, 2017 01:55AM
I have all my parents IRA contributions total from all their tax returns for this my second year receiving RMD for the inherited IRA & I have last year’s 2015 WorkSheet C.
So how do I complete unrecovered contributions from this my 2nd year receiving an inherited RMD?

Re: Unrecovered Contributions
Posted by: Benn, February 25, 2017 02:46AM
Your misunderstanding seems to stem from a belief that "previously taxed contributions" means that amount taxed on the previous year return. That is incorrect. To do this correctly you need to research the amount of contributions made to the IRA over the years since it was established. There is no other way, unfortunately. You can't use a different formula, even if it appears to give a decreasing amount for the tax-free value each year. The NJ Division of Taxation will only accept following the procedure as stated in NJ Worksheet "C". I suggest that you should follow that procedure.

If you inherited this IRA from your parents and you have a record of all of their contributions to the IRA, you should be able to add up all of the contributions to determine the total. Then simply follow the procedure of NJ Worksheet "C". You need to enter your parents contributions only the FIRST year of using Worksheet "C". For the second and all years following, the numbers will flow forward into Worksheet "C" from the worksheet "C" of the previous year. If you did something different from that you may need to file an amended return for last year.

Also, you will need to keep a separate Worksheet "C" for the account inherited from each of your parents, and your own IRA, if you have an IRA of your own in NJ.



Sorry, only registered users may post in this forum.