MA CPA here with New Jersey client. Client retired in 2018 and started drawing from retirement account. At the time of his retirement, it appeared he would draw enough from his retirement to cover his total contributions into the plan within the first 36 months of retirement. Under NJ law, there are two methods to calculate the taxable portion of the retirement distribution. The first way is to exclude all retirement contributions until they equal your total contributions so long as this will happen within the first 36 months of retirement and both the taxpayer and employer contributed to the plan (Three-Year Rule). If the Three-Year Rule doesn't apply, then the General Method must be used whereby a portion of the distribution is taxed based on a ratio.
My question: My client is now considering not taking his RMD for 2020, which would mean that he will not ultimately meet the Three Year Rule as 2020 is Year 3 of retirement. So what happens if you do not ultimately meet the Three Year Rule, when you originally thought you would? Do you have to amend prior year returns to change the reporting of the distributions from the Three-Year Rule to the General Method? Or do you just continue using the General Method? Has New Jersey suspended the Three Year Rule to account for the suspension of 2020 RMDs?