TRADITIONAL IRAs
Traditional IRAs are federally allowed accounts
taxpayers may set up to save for retirement.
Contributions to traditional IRAs provide for
federal income tax deductions, however tax-
payers may also make IRA contributions with-
out claiming deductions and when deductions
are not permitted.
Contributions must be made before a taxpayer
becomes 70 ½ years old, and minimum distri-
butions from an IRA are required once a tax-
payer reaches that age. A retired taxpayer
between 59 ½ and 70 ½ years of age may
choose whether or not to receive distributions.
For federal income tax purposes, contributions
to traditional IRAs lower taxable income and
grow tax-free until withdrawn.
ROTH IRAs
Roth IRAs are also federally allowed accounts
taxpayers may set up to save for retirement.
However, contributions to Roth IRAs are not
tax-deductible for federal income tax purposes,
and there is no age limit for making contribu-
tions.
Generally, Roth IRA withdrawals are not taxable
for federal income tax purposes, if the individ-
ual has had the retirement account for more
than five years and has reached 59 ½ years of
age.
What are Pennsylvania’s rules
regarding IRAs?
Following are the most commonly applicable
personal income tax rules with regard to tradi-
tional and Roth IRAs.
•
Contributions are not tax deductible.
•
Withdrawals are generally not taxable after a
taxpayer reaches retirement age and retires.
•
Payments employers make for the
benefit of employees directly to IRA trustees
or issuers may be excluded from
compensation.
•
IRA contributions made by, on behalf of or
attributable to an employee or self-
employed person – regardless of whether
the contributions were made directly or indi-
rectly; through a payroll deduction or a
salary reduction agreement; or otherwise –
may not be excluded or deducted from
income for PA personal income tax
purposes.
•
Income on assets held in an IRA is not
taxable.
•
Distributions can be considered income for
PA personal income tax purposes to the
extent distributions exceed the contributions
to the plan when distributions are made
before the IRA owner reaches 59 ½ years of
age.
•
The cost-recovery method is used to deter-
mine the portion of distributions to be
included in income.
Must all distributions from IRAs be
reported for PA personal income tax
purposes?
Yes. All IRA distributions should be reported on
PA Schedule W-2S, Wage Statement Summary,
whether or not some or all of the distributions
are taxable. If a taxpayer receives distributions
before he/she reaches 59 ½ years of age, some
of the distributions may be taxable. The cost-
recovery method is used to determine the por-
tion of distributions to be included in income.
REV-636 (PO+) 02-18
RETIREMENT
TRADITIONAL IRAs and
ROTH IRAs
Online Customer Service Center
www.revenue.pa.gov
Taxpayer Service & Information Center
Personal Taxes: 717-787-8201
Business Taxes: 717-787-1064
e-Business Center: 717-783-6277
1-888-PATAXES (728-2937)
Touch-tone service is required for this automated
24-hour toll-free line. Call to order forms or check the
status of a personal income tax account or property
tax/rent rebate.
Automated Forms Ordering Message Service
1-800-362-2050
Service for Taxpayers with Special Hearing and/or
Speaking Needs
1-800-447-3020
Call or visit your local
Department of Revenue district office, listed in the
government pages of local telephone directories.
www.revenue.pa.gov
CONTACT INFORMATION
Individual Retirement Accounts (IRAs) are
special accounts that offer tax advantages
to help taxpayers save for retirement.
Eligibility All workers under age No age restrictions.
70 ½ at the end of the
year.
Contributions Made with pre-tax Made with after-tax
income. income.
Tax Benefits of Fully deductible if no Not deductible. If con-
Contributions employer retirement plan verting from IRA to Roth
exists. IRA, conversion is gener-
ally taxable for federal
income tax purposes.
Maximum Tax Year: Under Age 50: Same. If you have both
Contribution an IRA and a Roth
(per individual) 2014 $5,500 IRA, the total contribu-
2015 $5,500 tions cannot exceed
2016 $5,500 limits shown at left.
2017 $5,500
Tax Year: Over Age 50: Same. If you have
both an IRA and a
2014 $6,500 Roth IRA, the total
2015 $6,500 contributions cannot
2016 $6,500 exceed limits shown
2017 $6,500 at left.
Rollovers Same. No annual limit on
amount rolled over from
another qualified plan.
Conversion May convert from tradi-
tional IRA to Roth IRA, but
the conversion is generally
subject to federal income
tax.
Earnings/Withdrawals Generally not subject to Qualified distributions
federal income tax until after age 59 ½ are gener-
withdrawn. ally not subject to federal
income tax. Possible
penalty if not in account
for at least five years.
Distributions Before Generally taxable and Earnings generally taxable
Age 59 ½ subject to 10% early and subject to 10% early
withdrawal penalty. withdrawal penalty.
IRA Comparison Reference Traditional IRA Roth IRA
Are there differences between
Pennsylvania and federal tax rules on
roll-over contributions and plan
conversions?
Yes. For federal tax purposes, amounts rolled
over into Roth IRAs from traditional IRAs are
considered income. Similarly, the conversion of
a traditional IRA to a Roth IRA is generally tax-
able for federal income tax purposes.
For Pennsylvania personal income tax purposes,
the following rules apply:
•
Amounts rolled over into IRAs from non-IRA
individual retirement plans are generally
considered income in the distribution year to
the extent the distributions exceed contribu-
tions to the plan.
•
Amounts rolled over into an individual's IRA
from a federally qualified retirement plan
(other than an individual retirement plan)
are generally considered income for the dis-
tribution year to the extent the distributions
exceed contributions to the plan. However,
when a plan allows the distribution to be
paid directly to another federally qualified
retirement plan maintained for the same
owner’s benefit – as a direct trustee-to-
trustee transfer to the IRA – the distribution
is not considered taxable income. Similarly,
when the distribution is paid into the IRA no
later than the 60th day after the day on
which the IRA owner receives payment, the
distribution is not considered taxable
income.
•
The conversion of a traditional IRA to a Roth
IRA is generally not taxable. That is, monies
transferred from a traditional IRA to a Roth
IRA via conversion (whether by a trustee-to-
trustee transfer or a roll-over within 60
days) are generally not subject to
Pennsylvania personal income tax. However,
any amounts transferred from the traditional
IRA that are not put into the Roth IRA, be it
by federal income tax withholding or other-
wise, are subject to Pennsylvania personal
income tax. In such a situation, basis is allo-
cated pro-rata between the taxable distribu-
tion and the non-taxable conversion. If there
is a partial rollover/conversion, the basis in
the traditional IRA must be allocated pro-
rata between the traditional IRA and the
Roth IRA.
What are the PA rules with respect to IRA
distributions to charities or for other non-
retirement purposes?
Charity distributions and other non-retirement
distributions made before the IRA owner retires
from service are considered income for PA per-
sonal income tax purposes, to the extent distri-
butions exceed contributions to the plan.
The cost-recovery method is used to determine
the portion of distributions to be included in
income.
Is there additional information available
regarding PA personal income tax
treatment of IRAs?
Yes. Please refer to Personal Income Tax
Bulletin 2008-1 for additional IRA tax informa-
tion, including details regarding employer-
sponsored plans, investment accounts and
inherited IRAs. The bulletin is available online at
www.revenue.pa.gov
www.revenue.pa.gov
For information regarding Pennsylvania personal income tax rules, see Q&A on reverse.
