Massachusetts gives no deduction for traditional IRA contributions, even when federally-deductible.
On the flip side, when distributions come out, your MA "basis" comes out first until it's all used up and only then do distributions become taxable in MA.
The situation here is that the MA taxpayer:
1) has an inherited trad IRA from a non-spouse relative (who never lived in MA) and thus is taking RMDs from it. 2) has made traditional IRA contributions while in MA and so has MA basis.Logic (heh :) would indicate that since MA never taxed the contributions made to the inherited IRA there should be no MA basis in those distributions to be recovered and so the inherited IRA distributions should be fully taxable.
However, the worksheet in question doesn't make that distinction. It only asks for the total amount of MA basis ("contributions previously taxed by MA"), amount of MA basis previously recovered, and the gross amount of IRA distributions shown on the US return and then does the subtraction. So blindly following that calculation will render the distribution from the inherited IRA non-taxable.
The Form 1 instructions for this worksheet aren't any better.
And even MGL 62 Section 2(a)(2)(F) doesn't seem any less ambiguous:
[items to be deducted from federal AGI include...]Income from annuity, stock bonus, pension, profit-sharing, annuity or deferred-payment plans or contracts described in sections four hundred and three (b) or four hundred and four of the Code or individual retirement accounts, individual retirement annuities or retirement bonds described in sections four hundred and eight or four hundred and nine of the Code, until an aggregate amount of such income has been deducted under this subparagraph equal to the aggregate of all amounts previously subjected to taxation under this chapter; provided, that this subparagraph shall not apply to income from the optional retirement system established by section forty of chapter fifteen A.
Seems like that could be read either way. Does the "aggregate amount of such income" mean all IRA income (thus including income from inherited IRAs) or just income from your own IRA? If the former it would appear you can use the basis in your own contributions to offset the inherited IRA distributions while if the latter then you couldn't.
Anyone know what the definitive answer is?