Questions & Answers

Does my IRA distribution qualify to be nontaxable?

Distributions of your contributions to a traditional or Roth IRA are not taxed by Pennsylvania.

Distributions that exceed your contributions are taxable unless (A) the distribution was received on or after you reached the age of 59 1/2 OR (B) the distribution was paid to the estate, or the designated beneficiary, of the participant due to the participant's death.

If you retire before the age of 59 1/2, distributions received before age 59 1/2 are taxable to PA even if the distributions qualify to be exempt from the penalty for early withdrawal on your federal return.

EXAMPLE: Janet has an IRA into which she has contributed $15,000 over the years and it currently holds $25,000. She withdraws the full amount from her Roth IRA at the age of 50. Because she contributed $15,000 to the IRA, only the remaining $10,000 will be taxed by Pennsylvania.

If instead, Janet takes distributions of $5,000 for five years starting at age 50, the first three distributions (representing her contributions of $15,000) will not be taxable. The last two distributions will be taxed by Pennsylvania in the years she takes them.

If Janet waits until she's 59 1/2 or older to take distributions of the remaining $10,000, none of it will be taxed by Pennsylvania.

EXAMPLE: Michael has an IRA. When he dies, the IRA has $30,000 in it and the full amount is distributed to his son Robert who is the designated beneficiary. The $30,000 distribution is nontaxable and should not be included as taxable income on either man's Pennsylvania tax return.

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