If Michigan doesn't tax your retirement distribution, TurboTax will take care of this for you. You don't need to remove the retirement distribution from your state return.
Instead, enter the 1099-R information in the Federal Taxes section and continue through the interview. TurboTax will ask Where is the distribution from? and use your answer to determine the tax treatment of your distribution on the Michigan return. (Click the first screenshot below for reference.)
Later, when you are in the Michigan interview, you will see your Retirement Income and Pension Summary. (Click the second screenshot below for reference.) When you click on the retirement and pension income link, you'll see the distributions that are eligible for a deduction on your Michigan tax return. (Click the third screenshot below.)
