Q. I have annuities in my retirement accounts. I hope to use the interest earned as spending money when I retire, which will be after I reach the age of 59 1/2. Will the interest be taxable in the state of New Jersey?

Counting it down

A. As with many tax issues, It depends.

Were going to assume that when you say annuities in retirement accounts, you mean youre holding an annuity purchased inside your IRA. This is called a qualified annuity.

The key is the source of the funds in the IRA annuity, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

He said if the funds in the IRA came from a rollover from a 401(k) plan, then the interest would be taxable for both federal and New Jersey purposes, Hook said.

That is because the contributions originally made into the 401(k) plan were tax deductible for both federal and New Jersey purposes so all the distributions are taxable, Hook said.

Interestingly enough, certain contributions to retirement plans are not tax deductible for New Jersey purposes, he said.

For example, if the funds were a rollover from a 403(b) plan, then a portion of the distribution would not be taxable because New Jersey does not allow a tax deduction for contributions into a 403(b).

Same goes if the original contributions were IRA contributions. New Jersey does not allow a tax deduction for those either, Hook said.

If the annuities are not IRA, the answer is different. These would be called non-qualified annuities.

If you indeed withdraw just the interest from the annuity, then you would only pay tax on the interest, Hook said. The interest would be subject to both federal and New Jersey income tax.

Email your questions to Ask@NJMoneyHelp.com.

Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.coms weekly e-newsletter.

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