Michigan - TurboTax Retirement Income Code For Inherited IRA

[syoung123]

Hello, My wife and I are at the age that we can take Michigan deductions on retirement incomes.  For 2023, I have a pension distribution and a Traditional IRA to Roth conversion, and my wife has an inherited IRA distribution.  In the TurboTax state tax module for Michigan, on the input screen that says "Retirement Income and Pension Summary" (the info was transferred from the Federal module to the State module when I input the 1099Rs?), the pension has a code P (from private source or IRA), Roth conversion has a code C (Roth conversion), and the inherited IRA has a code N (some other pension subject to MI tax).  Since the inherited IRA is an "IRA", I changed the code from N to P.  However, TurboTax changed it back to code N and excluded the inherited IRA distribution from the deductions.  So for Michigan, is inherited IRA not qualified for retirement income deductions?  Or did I input it to TurboTax incorrectly?

[DaveF1006]

No. Unless your your wife is a surviving spouse, then the distribution is taxable. 

Michigan Subtractions

[syoung123]

To clarify, TurboTax is correct in putting code "N" on the inherited IRA and it is taxable in Michigan?  My wife inherited the IRA from her parent.  In the past, neither of us was able to deduct the pensions and IRA distributions (to Roth and cash) on the Michigan return because we weren't old enough, and Michigan also has changed the tax law on retirement incomes for 2023.  The question on whether Michigan taxes inherited IRA didn't come up until now.

[DavidD66 · Accepted solution]

An inherited IRA does not qualify for the Michigan retirement income exclusion.  According to Michigan Department of Treasury an IRA distributions after the death of the participant may only be subtracted from from income by a surviving spouse, and only if the decedent would have also qualified for a normal distribution under Distribution Code 7 at the time of death.   

[syoung123]

Thank you