state of hawaii tax rmd

[dvs4]

I am a full time resident of hawaii - retired and over 72 - is the rmd I withdraw from my IRA taxable in Hawaii?

[xmasbaby0 · Accepted solution]

Hawaii does not tax Social Security but it does tax certain types of retirement income.   You will enter your 1099R into the federal return and the information flows to the HI return. The software will follow the HI tax laws pertaining to your state when the state return is prepared.

[Naruroa]

I cannot believe this answer, since, under Hawaii law, only that portion of a pension plan which is employer-funded (i.e., matching funds) is tax exempt when you make a withdrawal. If you rollover a 401k into an IRA, it appears that you have to keep track of what portion of the IRA came from the employer-funded portion of the 401k. That portion, and that portion only, is exempt from state tax. But when you are issued a 1099-R, it does not contain the necessary information, so there is no way that TurboTax knows what to do (which is why it asks you to "enter the nontaxable portion of the IRA distributions").

Unless there has been a recent change in the law that I don't know about (say, within the last year), TurboTax steers you the wrong way by saying "Distributions made to comply with federal mandatory payout rules [i.e., RMDs] are non-taxable." Only part of them is non-taxable.

If I'm wrong, I'd sure like to know about it.

[Naruroa]

To work out how much of your RMD is exempt from Hawaii tax, download Schedule J from the Hawaii taxation web site (make sure you get the version for the current tax year). As specified in the comments above, the fraction of your pension that comes from an employer match is exempt from Hawaii tax. Schedule J helps you work out what that fraction is.

Even if you have rolled over to a new savings scheme (e.g., from a 401k to an IRA), the earnings from that fraction of the resulting IRA retain their "employer match" identity as far as Hawaii is concerned and are exempt from Hawaii tax.

In my case, I never did file Schedule J. It was too much work and the savings in doing so were too meager to make it worthwhile. I just set the deduction to zero.