Tax Policy

States May Tax Roth Iras

Some state legislatures must soon decide whether to change their laws to exempt the new Roth Individual Retirement Accounts (IRAs) from being taxed. The interest earned by and withdrawals from Roth IRAs are exempt from federal taxes.

  • Laws in up to 19 states and the District of Columbia don't automatically conform to changes in federal tax laws.

  • In Massachusetts, for example, Roth IRAs would be subject to a 12 percent state tax on any income the accounts earn every year -- as well as any withdrawals.

  • California's Republican Gov. Pete Wilson signed a bill in October that exempts Roth IRAs from state income tax.

Other states which may have to take some action are: Alabama, Arizona, Arkansas, Georgia, Hawaii, Idaho, Indiana, Iowa, Kentucky, Maine, Massachusetts, Minnesota, Mississippi, New Jersey, North Carolina, Oregon, South Carolina, West Virginia and Wisconsin -- as well as the District of Columbia.

Source: Kerry Hannon, "Roth IRA Isn't Tax-Free in Some States," USA Today, January 29, 1998.

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