401k earned vs. unearned

[Avery56]

My husband and I each took a 401k total distribution in 2024. We live in Minnesota and I am no trying to determine if we are eligible for a marriage credit on the Minnesota M1MA form.  W2 income ("earned") counts towards the credit but 401k income does not. I realize that 401k income is deferred but logically I earned it and paid taxes on it just as I did with the W2 income, the only difference was in the timing of taking pay/ paying the taxes.  Why are these two types of work earned income treated differently when it comes to the M1MA?  Thanks for any enlightenment.

[Bsch4477]

Tax law defines a distribution from a retirement account as unearned income. We are not privy to the reason for the law. 

[ThomasM125]

Pension distributions are not considered earned income, even though it was earned when you originally received the associated income, but only in part. The distributions from your pension plan area a combination of earnings on the contributions, which is clearly not earned income, and a return of the amount you contributed. Consequently, It may make sense to treat some of it as earned income, but that is not how the tax code works. I assume it has to do with the fact that tax on the income is deferred, so you already have one benefit so allowing you to treat a portion of the income as earned would be doubling up on benefits.