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rhian01
New Member

I live in Hawaii and took an early withdrawal from my 401k due to a certified permanent disability. Is this taxable? If my wife also took one due to my disability, is hers taxable?

Our state law on pension distributions is very confusing and goes into a lot of detail on annuities but very little detail on lump-sum distributions from a 401k. If we don't have to pay the 10% penalty for the federal taxes on it, I'm beginning to understand we may not need to pay Hawaii income tax on it either, but the examples used in their explanation of the law do not cover this scenario. And I don't know who I could ask besides the other self-filers out there; I don't think there's a state help line or anything...
3 Replies
AnnaB
New Member

I live in Hawaii and took an early withdrawal from my 401k due to a certified permanent disability. Is this taxable? If my wife also took one due to my disability, is hers taxable?

First, the amounts taken out are taxable on your Federal return.  You are only exempt from the 10% early withdrawal penalty for being disabled.  Next, the state of Hawaii calculates tax based on your Federal income and does not have any adjustments made for early 401(k) distributions; therefore, since it's taxable on Federal, its also taxed on state.  There is no penalty for an early distribution in Hawaii.

Note: Hawaii does allow an exclusion for qualified pension plans.  An early distribution is not considered a qualified distribution.  In addition, a 401(k) is considered a deferred compensation plan and is fully taxable to the extent it was taxed on your Federal return.

There is a way to contact the state Department of Revenue.  Please refer to the link below.

http://tax.hawaii.gov/contact/


KonaJoe
New Member

I live in Hawaii and took an early withdrawal from my 401k due to a certified permanent disability. Is this taxable? If my wife also took one due to my disability, is hers taxable?

My understanding is that while 401K distributions are generally taxable in Hawaii, there is an exclusion for the amount of any company funded matching contribution made to the plan.  Hawaii doesn’t tax pension distributions where the pension was funded entirely by company contributions - and in TruboTax, I’m prompted the enter the “exclusion amount” for each 401K distribution I’m taking.  This is the first year I’m taking 401K distributions.  I can find language in Hawaii tax dept. on-line documents referring to this - but I can’t find the “formula” mentioned for determining the exclusion amount.  For each of my previous 401K plans, my employer offered a 6% match while I contributed 8%.   The examples I find seem to indicate that — for example — if I contributed $800/month to a 401K ($9600/yr) and the employee match was $600/month ($7200) — and I began to withdraw $30,000 a year from the 401K, my exclusion would be $7,200/$30,000 — or 24% — but I have no idea if this is the correct way to calculate the exclusion.  TurboTax offers no guidance.

SusanY1
Expert Alumni

I live in Hawaii and took an early withdrawal from my 401k due to a certified permanent disability. Is this taxable? If my wife also took one due to my disability, is hers taxable?

While it's not the simplest form, Hawaii offers a schedule to help you determine the non-taxable part of the type of retirement withdrawal you describe.  You can use their worksheet "Schedule  J" to determine the non-taxable portion to enter into TurboTax.  Here is a link to that Schedule: Hawaii Schedule J

 

@KonaJoe

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