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Gail in Virginia

NC Retirement Deduction

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I am doing a return for a North Carolina resident. According to the instructions, private retirement benefits included in federal taxable income that do not exceed $2000 are deductible from NC taxable income. My taxpayer took an IRA distribution and rolled it over into a ROTH IRA. The total amount is less than $2000. Is this is excludable on the NC return? He also has a small amount from a settlement on a mutual fund formerly held in his IRA. If I am reading this correctly, since he cashed the check instead of forwarding it to his IRA trustee to be put in the IRA, he must pay tax and penalty on this amount. Is this excludable from his NC income?

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Yes, the first $2,000 of distributions from private retirement plans is excludable from NC income. Anything that winds up on line 15b or 16b of the 1040 is eligible for this exclusion. The exclusion is per taxpayer, so in the case of a husband and wife, each can use up to the $2,000 exclusion if they have separate retirement distributions.

But even if you check the proper boxes on the 1099R entry form in ATX, you still need to make the entry on page 2 of the NC D-400 in order to get the exclusion to calculate.

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