Pennsylvania Retirement - Traditional IRAs and Roth IRAs Brochure

Retirement - Traditional IRAs and Roth IRAs Brochure
Brochure: Retirement - Traditional IRAs and Roth IRAs (REV-636)
CONTACT INFORMATION
Online Customer Service Center
www.revenue.pa.gov

RETIREMENT
TRADITIONAL IRAs and
ROTH IRAs

Taxpayer Service & Information Center
Personal Taxes: 717-787-8201
Business Taxes: 717-787-1064
e-Business Center: 717-783-6277

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 taxpayers may also make IRA contributions without claiming deductions and when deductions
are not permitted.
Contributions must be made before a taxpayer
becomes 70 ½ years old, and minimum distributions from an IRA are required once a taxpayer reaches that age. A retired taxpayer
between 59 ½ and 70 ½ years of age may
choose whether or not to receive distributions.

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.

For federal income tax purposes, contributions
to traditional IRAs lower taxable income and
grow tax-free until withdrawn.

Automated Forms Ordering Message Service
1-800-362-2050
Service for Taxpayers with Special Hearing and/or
Speaking Needs

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 contributions.

1-800-447-3020
Call or visit your local
Department of Revenue district office, listed in the
government pages of local telephone directories.

Individual Retirement Accounts (IRAs) are
special accounts that offer tax advantages
to help taxpayers save for retirement.

Generally, Roth IRA withdrawals are not taxable
for federal income tax purposes, if the individual 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 traditional and Roth IRAs.
• Contributions are not tax deductible.
• Withdrawals are generally not taxable after a
taxpayer reaches retirement age and retires.

www.revenue.pa.gov

REV-636 (PO+) 02-18

• 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 selfemployed person – regardless of whether
the contributions were made directly or indirectly; 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 determine 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 costrecovery method is used to determine the portion of distributions to be included in income.

IRA Comparison Reference
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 taxable 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 contributions 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 distribution 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-totrustee 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-totrustee 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 otherwise, are subject to Pennsylvania personal
income tax. In such a situation, basis is allocated pro-rata between the taxable distribution and the non-taxable conversion. If there
is a partial rollover/conversion, the basis in
the traditional IRA must be allocated prorata between the traditional IRA and the
Roth IRA.

Traditional IRA
All workers under age
70 ½ at the end of the
year.

Roth IRA
No age restrictions.

Contributions

Made with pre-tax
income.

Made with after-tax
income.

Tax Benefits of
Contributions

Fully deductible if no
employer retirement plan
exists.

Not deductible. If converting from IRA to Roth
IRA, conversion is generally taxable for federal
income tax purposes.

Tax Year:

Under Age 50:

2014
2015
2016
2017

$5,500
$5,500
$5,500
$5,500

Same. If you have both
an IRA and a Roth
IRA, the total contributions cannot exceed
limits shown at left.

Tax Year:

Over Age 50:

2014
2015
2016
2017

$6,500
$6,500
$6,500
$6,500

Eligibility

Maximum
Contribution
(per individual)

What are the PA rules with respect to IRA
distributions to charities or for other nonretirement purposes?
Charity distributions and other non-retirement
distributions made before the IRA owner retires
from service are considered income for PA personal income tax purposes, to the extent distributions exceed contributions to the plan.
The cost-recovery method is used to determine
the portion of distributions to be included in
income.

Same. If you have
both an IRA and a
Roth IRA, the total
contributions cannot
exceed limits shown
at left.

Rollovers

Same. No annual limit on
amount rolled over from
another qualified plan.

Conversion

May convert from traditional IRA to Roth IRA, but
the conversion is generally
subject to federal income
tax.

Is there additional information available
regarding PA personal income tax
treatment of IRAs?

Earnings/Withdrawals

Yes. Please refer to Personal Income Tax
Bulletin 2008-1 for additional IRA tax information, including details regarding employersponsored plans, investment accounts and
inherited IRAs. The bulletin is available online at
www.revenue.pa.gov

Generally not subject to
federal income tax until
withdrawn.

Qualified distributions
after age 59 ½ are generally not subject to federal
income tax. Possible
penalty if not in account
for at least five years.

Distributions Before
Age 59 ½

Generally taxable and
subject to 10% early
withdrawal penalty.

Earnings generally taxable
and subject to 10% early
withdrawal penalty.

For information regarding Pennsylvania personal income tax rules, see Q&A on reverse.
www.revenue.pa.gov