Taxable IRA Distributions

donnieboston
donnieboston Member Posts: 23 Level 3
in Retirement Income

Can someone please advise me where I can find the dollar amount (if needed) to this one question the tax software is asking me. I live in Massachusetts and my taxes with my IRA deductions. were withheld from my IRA account in 2025.

"The potential Massachusetts taxable amount of IRA distributions from your federal return is $2,210. From this amount, subtract any IRA contributions that haven't already been used to reduce any prior year IRA distributions. This reduced amount is the taxable Massachusetts IRA distribution you need to enter below."

Thank You!

Comments

  • GeorgeM
    GeorgeM FreeTaxUSA Agent Posts: 86 image
    edited February 18

    Hello donnieboston:

    Your personal financial records may be the only place where you can ascertain the amount to enter on the MA screen you reference. Under MA tax law, the amounts contributed to a Traditional IRA are taxed whether or not a deduction was taken on a federal tax return. Thus, when a distribution is taken from a Traditional IRA, MA defines all previous contributions that were also taxed by MA as essentially “after-tax” money. This after-tax money is essentially your basis and MA will not tax your basis; however, MA will tax your earnings, i.e. the amount in excess of your basis.

    Perhaps the best case scenario for you is that if in previous tax years, you never took a deduction for your IRA contributions, then your tax return will likely include Form 8606 which reports nondeductible IRA contributions. Form 8606 records your basis, or the amount that was contributed with after-tax money (since you never took a deduction for it). You will need to review your prior year tax returns and look for Form 8606.

    If you haven't been regularly contributing to your IRA, then you may want to contact your IRA custodian to see what years you made IRA contributions, and in what amount, so you can check those tax returns.

    For MA, to the extent you have already recovered your basis in your Traditional IRA, then your distribution for 2025 will be fully taxable by MA.

    Please note, that for future years, you may need to fill out the Schedule X, line 2 worksheet to figure out the amount to enter. MA will not tax you on your distributions until the full amount of your IRA contributions which were previously taxed by MA have been recovered. (page 19)

    https://www.mass.gov/doc/2025-form-1-instructions/download

  • donnieboston
    donnieboston Member Posts: 23 Level 3
    edited February 18

    Thanks for answering the question, but I'm still confused… I began withdrawal from my IRA last August. I had my taxes withheld each month. Also my prior tax years does not include any 8606 tax forms. So does this mean I just leave it $0? Also I collected $2,210 from August 2025 to Dec 31 2025 after taxes. Thanks

  • donnieboston
    donnieboston Member Posts: 23 Level 3

    Also, I believe I rolled over my 403B retirement from my employer when I retired into my IRA….

  • donnieboston
    donnieboston Member Posts: 23 Level 3

    Hi GeorgeM…. Thanks for answering my question…

    I just need to mention that I never recalled receiving from 8606 for my IRA since I began taking from my IRA starting in August 2025. I don't understand why this would be such a big deal since I've had my taxes withheld from my IRA in 2025. I've only started collected from in for 6 months in 2025. The years prior I never touched it…. I also looked it up on google and said I could find that dollar amount on for 5498… which may ring a bell…. Is this possible?

    Sincerely,

    Donnie…

  • MatthewD
    MatthewD FreeTaxUSA Admin, FreeTaxUSA Agent Posts: 901 image
    Hi DonnieBoston,

    Let me explain that question, about taxable MA IRA distributions, you first mentioned, another way. Perhaps this will clarify the issue. MA does not allow for a deduction for retirement income when you contributed in prior year. This is exactly the opposite of how contributions are generally treated for federal purposes. MA makes you add back the deductions in those years making all your contributions "after-tax" contributions. That way when you retire your retirement, the original basis in the distribution is not taxable for MA taxes.

    Essentially you have a MA nontaxable basis. BUT the earnings are taxable and also if you have contributions that were not taxed in prior years, you must subtract that amount from this years distribution, since that amount will be taxable. It is very uncommon if you have been a lifelong MA resident and all your IRA and 403B contributions were taxed by MA.

    To clarify, Form 8606 is not sent by the institution but is generated on your tax return only when needed.

    I hope that helps. You may want to contact your retirement administrator for some guidance on what amount MIGHT be taxable to MA.

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