It really depends on your state!? E.g. In NJ, according to GIT-2 IRA Withdrawals: "If the interest received by the taxpayer as part of an IRA distribution is from exempt obligations that are directly owned by the taxpayer in the IRA plan, the interest is exempt from New Jersey Income Tax. Likewise, if the IRA is part of a New Jersey “Qualified Investment Fund,” the portion of the distribution from the IRA that represents interest or gains from the qualified exempt obligations held by the fund is exempt. However, the portion of a distribution that comes from taxable investments held by the fund is taxable. If the IRA is part of a mutual fund that is not a Qualified Investment Fund, the distributions paid by the mutual fund are exempt only to the extent the distributions are from interest on federal obligations."
*The real question is how to report this info in TurboTax? and keep a running tally of this each year you take RMD? If anyone knows, then please post.
