Tax Type
Individual Income Tax
Description
Taxable income, in general; Roth IRAs.
Topic
Taxable Income
Date Issued
03-09-1998
March 9, 1998
Dear********:
This will reply to your letter in which you request a ruling regarding the Virginia individual income tax consequences of a Roth individual retirement account. I apologize for the delayed response.
FACTS
The Taxpayer Relief Act of 1997 (the "Act') created a new individual retirement account (IRA) known as the "Roth IRA.' Contributions to a Roth IRA are nondeductible; however, qualifying distributions are exempt from federal taxation.
An individual can convert a regular IRA account into a Roth IRA. While the distributions required to make such a conversion would be taxable, the Act allows a taxpayer to ratably include such amounts in his federal gross income over a four-year period for conversions made prior to January 1, 1999. Further, such conversions would not be subject to the early withdrawal penalty.
You have requested a ruling from the department regarding the Virginia individual income tax consequences of a Roth IRA.
RULING
Code of Virginia Sec. 58.1-301, copy enclosed, provides that the terms used in Virginia law as it relates to individual income taxation shall have the same meaning as the terms used in the Internal Revenue Code (IRC). Accordingly, Virginia law provides that the starting pont for computing Virginia taxable income is the federal adjusted gross income.
Converting to a Roth IRA
Distributions from a regular IRA can be rolled over into a Roth IRA within the statutory provisions of IRC Sec. 408(d)(3), copy enclosed. Such distributions are includable in the taxpayer's gross income. Pursuant to IRC Sec. 408A(d)(3)(A)(iii), copy enclosed, if the distribution occurs prior to January 1, 1999, the taxpayer is required to ratably include the distribution amount in his federal gross income over a four-year period. The conversion of amounts from a nondeductible IRA, for which a deduction was not previously allowable on the taxpayer's return, however, would generally not be includible in the taxpayer's gross income.
Accordingly, to the extent such distribution amounts are includable in the taxpayer's federal adjusted gross income, they would be taxed on the taxpayer's Virginia individual income tax return. If the distribution occurs prior to January 1, 1999, and the distribution amounts are ratably reported over the four-year period described above, then they would be similarly reported on the Virginia return over a four-year period.
Your correspondence indicated that you might elect to report the conversion of a regular IRA to a Roth IRA over a period of two or three years. The department, however, does not interpret any flexibility in the statutory language pertaining to a rollover which occurs prior to January 1, 1999. Rather, a taxpayer must report the distribution equally over a period of four years. The Internal Revenue Service should be contacted for specific questions on the federal reporting requirements.
Distributions from a Roth IRA
Pursuant to IRC Sec. 408A(d), qualifying distributions from a Roth IRA are not includable in a taxpayer's federal gross income. A qualified distribution is a distribution which is made under one of the following conditions: on or after the date the taxpayer reaches the age of 59|1/2; to a beneficiary or estate on or after the taxpayer's death; because of the taxpayer's disability; or for a qualified special purchase, such as a first home.
Accordingly, to the extent a Roth IRA distribution is excludable from a taxpayer's federal gross income, it would not be taxable on the Virginia individual income tax return. If such distribution is taxable on the taxpayer's federal return, it would be similarly taxable on the Virginia return.
I trust this will answer the questions posed in your letter. If you have additional questions or if we may be of further assistance, please contact ***** at ***** or at the Virginia Department of Taxation, Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880.
Dear********:
This will reply to your letter in which you request a ruling regarding the Virginia individual income tax consequences of a Roth individual retirement account. I apologize for the delayed response.
FACTS
The Taxpayer Relief Act of 1997 (the "Act') created a new individual retirement account (IRA) known as the "Roth IRA.' Contributions to a Roth IRA are nondeductible; however, qualifying distributions are exempt from federal taxation.
An individual can convert a regular IRA account into a Roth IRA. While the distributions required to make such a conversion would be taxable, the Act allows a taxpayer to ratably include such amounts in his federal gross income over a four-year period for conversions made prior to January 1, 1999. Further, such conversions would not be subject to the early withdrawal penalty.
You have requested a ruling from the department regarding the Virginia individual income tax consequences of a Roth IRA.
RULING
Code of Virginia Sec. 58.1-301, copy enclosed, provides that the terms used in Virginia law as it relates to individual income taxation shall have the same meaning as the terms used in the Internal Revenue Code (IRC). Accordingly, Virginia law provides that the starting pont for computing Virginia taxable income is the federal adjusted gross income.
Converting to a Roth IRA
Distributions from a regular IRA can be rolled over into a Roth IRA within the statutory provisions of IRC Sec. 408(d)(3), copy enclosed. Such distributions are includable in the taxpayer's gross income. Pursuant to IRC Sec. 408A(d)(3)(A)(iii), copy enclosed, if the distribution occurs prior to January 1, 1999, the taxpayer is required to ratably include the distribution amount in his federal gross income over a four-year period. The conversion of amounts from a nondeductible IRA, for which a deduction was not previously allowable on the taxpayer's return, however, would generally not be includible in the taxpayer's gross income.
Accordingly, to the extent such distribution amounts are includable in the taxpayer's federal adjusted gross income, they would be taxed on the taxpayer's Virginia individual income tax return. If the distribution occurs prior to January 1, 1999, and the distribution amounts are ratably reported over the four-year period described above, then they would be similarly reported on the Virginia return over a four-year period.
Your correspondence indicated that you might elect to report the conversion of a regular IRA to a Roth IRA over a period of two or three years. The department, however, does not interpret any flexibility in the statutory language pertaining to a rollover which occurs prior to January 1, 1999. Rather, a taxpayer must report the distribution equally over a period of four years. The Internal Revenue Service should be contacted for specific questions on the federal reporting requirements.
Distributions from a Roth IRA
Pursuant to IRC Sec. 408A(d), qualifying distributions from a Roth IRA are not includable in a taxpayer's federal gross income. A qualified distribution is a distribution which is made under one of the following conditions: on or after the date the taxpayer reaches the age of 59|1/2; to a beneficiary or estate on or after the taxpayer's death; because of the taxpayer's disability; or for a qualified special purchase, such as a first home.
Accordingly, to the extent a Roth IRA distribution is excludable from a taxpayer's federal gross income, it would not be taxable on the Virginia individual income tax return. If such distribution is taxable on the taxpayer's federal return, it would be similarly taxable on the Virginia return.
I trust this will answer the questions posed in your letter. If you have additional questions or if we may be of further assistance, please contact ***** at ***** or at the Virginia Department of Taxation, Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880.
Rulings of the Tax Commissioner