Many individuals set up a Roth retirement account to take full advantage of the tax incentives and savings. This type of retirement fund allows individuals to contribute their earned after-tax dollars into the account that will grow in value tax-free.
A Roth retirement account also allows tax-free withdrawals. Each state has its own tax rules and regulations that include tax-related rules for Roth IRA accounts.
Read on to learn whether the state of Ohio taxes Roth IRA distributions and to discover other important tax-related retirement account information.
Are There Any States That Do Not Tax Roth IRAs?
At the present time, there are nine states that do not tax Roth IRAs at all due to those states not having any state income tax. While Ohio is not included in this list, Roth IRA distributions are most likely already taxed by the federal government tax-related laws.
In these cases, Ohio does not have a separate state tax form entry for the Roth IRA distribution.
Are There Any Times When Ohio Would Tax Roth IRA Distributions Separately?
Possibly yes, if the federal tax was somehow not applicable, then the state tax laws would be different. Ohio may not tax the distribution either if the federal tax was not applicable saving Ohio citizens more money by way of tax savings.
Are There Any Tax Breaks for Retired Individuals on Roth IRA Distribution Taxes?
In the state of Ohio, if an individual is already retired and wants to withdraw or roll-over a Roth IRA, these individuals will likely qualify for the state of Ohio's current income tax credit that can help keep any taxes related to these IRAs lower.
Some Ohio Taxpayers Can Claim a Zero State Income Tax with This Credit
Ohio taxpayers can benefit from this tax credit at retirement age that may lower their state income tax obligation to zero tax dollars owed in some cases.
What Happens if the Owner of a Roth IRA Wants to Withdraw Funds Early?
Like most individual retirement accounts, there is a penalty fee when wanting to withdraw funds before the age of retirement or before the account holder reaches the age of 59 1/2 years.
There are also rules that limit or do not allow the account holder to withdraw any interest accrued or other related qualifications until they reach the designated retirement age and meet other tax qualifications.
What Are the Current Qualified Withdrawals of Roth IRA Distributions?
Determining what constitutes a qualified withdrawal, or a Roth IRA distribution, can be a complex matter that requires tax knowledge both on the federal and state levels.
These qualified withdrawals of a Roth IRA distribution include:
- Account holder reaches the age of 59 1/2 years old
- The account holder dies, and designated beneficiaries are being paid through your estate or IRA company
- The account holder becomes disabled permanently
- Withdrawal amount going towards acquisition of first house up to $10,000
How Much Is the Tax Penalty for Withdrawing Funds from a Roth IRA Early?
In most cases, there will be a 10% penalty when a person withdraws early from funds held in a Roth IRA. There are some exceptions and knowing what these are can possibly avoid that steep 10% penalty amount.
Some exceptions include up to $10,000 in order to get a home for the first time, using the distribution money to pay for education expenses, funds paid for medical bills and expenses that are not reimbursed, expenses related to a birth or adoption of up to $5,000 and health insurance expenses among a few other related situations.
Does Ohio Tax Retirement & Other Types of Private Income?
Yes, Ohio does mandate the taxation of any private income sources or funds. This differs from some other states that do not have a state income tax mandate or tax requirements on private income. This tax liability is relevant for all Ohio state residents, but non-residents are exempt from this tax.
How Much Tax Will I Owe on Roth IRA Distributions?
Ohio, like many other states, uses a progressive type of tax system. This means that the state will collect more taxes from those individuals who have a higher income. In addition, there are some exceptions to this rule.
The top tax tier is capped, and this means that even wealthier taxpayers in this state will not be taxed higher that the state's current tax income level threshold.
What Are the Tax Credits Related to Roth IRA Distributions
Although the overall tax credits for certain taxpayers living in Ohio does not seem like much, these credits can still add up and benefit the account holder.
These tax credits or exemptions include:
- A $200 tax credit for all retirement income sources considered private income
- Taxpayers over age 65 receive an additional credit amount of $50
- Any payments from social security and railroad retirement benefits may be deducted on taxes
- Interest from U.S. treasury savings bonds, notes and bills are not taxed
Many Ohio residents currently have a Roth IRA that contains precious metals and other items of value. This capital is to help fund their golden years. Ohio taxpayers can save more by taking advantage of retirement-related tax benefits.
This leaves more money left for the taxpayer's expenses like medical, education, real estate and travel among many others.