Are retirement rollovers from pre-tax to Roth subject to PA state tax?
From googling I think the answer to the question I posted is "No." But I did such a rollover in 2024 and then when I did my 2024 taxes on here at FreeTaxUSA in early 2025, it taxed the rollover income not only for the Fed Gov't but also for the state of PA. I did another such rollover recently and I sent the state of PA estimated tax this time so that I wouldn't have to write a big check when I did my 2025 taxes in early 2026. But now I read that those rollovers aren't taxable in PA? Is that true and if so, how can I get my money back from last year and for that matter the estimated tax I just sent in? Any help is greatly appreciated.
Answers
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Hello Jag,
I did a test of our 2025 and 2024 software and found the following:
- A conversion from a traditional IRA (where the contributions were pre-tax) the federal will be taxable, but on PA the conversion is not taxable. Generally, the 1099-R will have a code of 1 or 2 (or even 7) in box 7 and the IRA/SEP/SIMPLE box is checked.
- A conversion of pension plan, 401(k) or other employer plan to a Roth, will be taxable on your federal and will only be taxable on PA if you add it as taxable income when you prepare the PA return in our software. Generally it is NOT taxable on your PA return.
The reason: Pennsylvania does not provide a state income tax deduction for contributions to traditional IRAs or 401(k)s during your working years. As a result, the state does not tax withdrawals or conversions from these accounts later on, to avoid double taxation. However, if you moved to PA after working and living in another state, the contributions may never have been taxed during your working years and you would need to add the distribution/conversion as taxable PA income.
There must be something going on with your conversion which does not fit in the normal PA tax situation. I suggest you contact FreeTaxUSA customer support so a tax specialist can look at your account and 2024 to see what is going on and help you with 2025. If you made a mistake on 2024, you could amend it and get a refund for taxes you paid to PA in 2024.1 -
It is a 401k (actually 403b I think, but same thing for these purposes). And it's true that I put pre-tax money in it when I lived and worked in NC, before I moved to PA. So I would be getting a lucky break by not paying tax when the money went in when I was in NC and then not paying taxes when the money came out when I was in PA. That didn't have anything to do with why I moved to PA so I figured it was just a coincidence.
It didn't occur to me that on the PA end they would consider whether or not I paid tax on the money when I earned it, even if I earned it in another state. Maybe PA does take that into account. Or maybe they don't and there is a mix up somewhere. I will contact customer support as you suggested. Thanks.
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Hi Jag,
Since you contributed pretax earnings while living in NC, then it is reasonable that it is a taxable conversion for PA. If it was post-tax contributions, then it may not be taxable in PA.
Contacting Customer Support on your FreeTaxUSA account it a good idea. Someone can take a look at your account and see details to help you understand what is going on. If you add Deluxe or Pro Support you can also chat live.
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