Retirement withdrawal taxation in Hawaii

[SecondAttempt]

I'll start by saying that this question may be very specific to Hawaii although I think there are other states with similar approaches.

Hawaii does not tax pensions (not relevent to me) or 40?a/b/k/s that were taxed by the state when earned.

I have IRAs that were accumulated from many jobs outside the state, some from government retirement plans that were rolled out. I also have some active 40?a/b/k/s from Hawaii and other states. I am trying to figure out withdrawal/consolidation strategies. I have records but not good records for 20+ years ago when I had no inkling of being in this boat.

Hire a professional you say? I tried to hire my tax preparer, an enrolled agent but she said there was no need. The State basically uses the honor system for this and she had never heard of anyone getting audited.

Now, I'm not trying to cheat but it would be almost impossible for me to reconstruct my tax situation and retirement going back 40 years. Plus, the IRS says we can throw away records after 6 years...

So, what to do?

[Winemaker]

Not sure what you're asking. Pennsylvania does not tax pensions, tIRAs, 401k or 403b plans, as long as they are qualified plans. I take a yearly distribution early, have the brokerage firm take out 20% federal tax, and make adjustments in December to top off all brackets/ cutoff points. No state tax paid. DW and I also have multiple accounts with various firms, but I'm only pulling from my 401k for now.

A quirk in PA's taxation is that if a couple has less than $13,000 in income , the 3.09% income tax is forgiven. I try to keep our rental income just below that number.

[1242Vintage]

From Hawaii’s TAX INFORMATION RELEASE NO. 96-5. https://files.hawaii.gov/tax/legal/t...09/tir96-5.pdf


. IRAs that are funded by an individual employee (rather than by a rollover from an employer plan) are, in general, deferred compensation plans the distributions from which are fully taxable.


Read the bulletin for more examples.

[ncbill]

IIRC, Hawaii doesn't tax public pensions.

[HI Bill]

Hawaii doesn't tax EMPLOYER contributions to your 401(k), but the EMPLOYEE contributions are fully taxable by the state. If you want to exclude your employer's contribution to your 401(k) from your taxable income, you'll need to figure out how much that is. I had to ask Vanguard to go back to their archives to get older records (in my case, going back to 2002), as they don't have all of their records online. I created a spreadsheet showing my 401(k) contributions and my employer's contributions, going back to 1993 for determining the assets basis, with regards to Hawaii taxability.

[SecondAttempt]

Quote:

Originally Posted by 1242Vintage From Hawaii’s TAX INFORMATION RELEASE NO. 96-5. https://files.hawaii.gov/tax/legal/t...09/tir96-5.pdf . IRAs that are funded by an individual employee (rather than by a rollover from an employer plan) are, in general, deferred compensation plans the distributions from which are fully taxable. Read the bulletin for more examples.

Thanks. I've read that publication. Unfortunately, Hawaii government publications do not always present rules that are cconsistent with what the law actually says. And the laws here are so poorly written that they are often ambiguous for all but the most clear situations. That's why I was asking for people with experience here.

Here is just one thing I found (you'll have to scroll a bit):

https://www.kiplinger.com/retirement...x-your-pension

My understanding is this: If I had a public pension from another state (or Hawaii) then Hawaii would not tax it. But this is based on whether the contributions were originally subject to state tax. For example, we don't pay Hawaii state tax on the employer part of 401(k) contributions and that makes them non-taxable when withdrawn at retirement.

In my case I had a public pension that I cashed out and rolled into an IRA 25+ years ago. I later comingled that IRA with other contributions and rollovers from employer 401(k)s that I don't even remember the match of. At the time there was no reason not too or to keep track. I have also moved it through several investment firms in that time period so getting records would not be trivial.

My EA says I only need to make a reasonable estimate of which contributions were taxed. But even making a reasonable estimate now would be difficult. She seemed to suggest the state would take my word for things and would not bother checking unless what I presented was really unreasonable.

Like I said, my goal here is not to cheat. But something like 60% of my withdrawals would seem to fit into the not taxed category so it is potentially quite a bit of money every year.

[clifp]

Quote:

Originally Posted by SecondAttempt I'll start by saying that this question may be very specific to Hawaii although I think there are other states with similar approaches. Hawaii does not tax pensions (not relevent to me) or 40?a/b/k/s that were taxed by the state when earned. I have IRAs that were accumulated from many jobs outside the state, some from government retirement plans that were rolled out. I also have some active 40?a/b/k/s from Hawaii and other states. I am trying to figure out withdrawal/consolidation strategies. I have records but not good records for 20+ years ago when I had no inkling of being in this boat. ?

Fortunately, I when I moved to Hawaii, I rolled my 401K into two separate IRA . One, which had my company contributions and earnings which are not HI Taxable and a second IRA which had my employee contributions and earnings which are taxed..

I've not done any withdrawal from employee contributions. Meaning that so far there has not been any conflict, both my state and federal are reported the same.

I've taken advantage of numerous state tax credits or startup investing, solar etc. So I seldom pay HI state tax.

In your case, my $.02 (and ain't worth a lot more than that) would be to make a good faith effort to judge how much was your contribution and how much your employer for each IRA. So say you have 4 IRA/403bs one is 50/50 another 67/33, another 75/25, and last is 40/60 (employee/employer).
I'd try and consolidate into 2 IRA like I did. Alternatively don't consolidate and just empty them out one at a time and attach a note to your return saying this IRA is 40/60.

The state doesn't really audit people. I would definitely avoid withdrawing say 5,000 from IRA A, and 8,000 from B, $5,000 from C, and 10,000 D, cause that would be as confusing as hell.


BTW, AFAIK Hawaii is the only state that treats pensions this way.

[Bamaman]

Quote:

Originally Posted by 1242Vintage From Hawaii’s TAX INFORMATION RELEASE NO. 96-5. https://files.hawaii.gov/tax/legal/t...09/tir96-5.pdf . IRAs that are funded by an individual employee (rather than by a rollover from an employer plan) are, in general, deferred compensation plans the distributions from which are fully taxable.

If I lived in Hawaii, I'd have a problem. My original MegaCorp sold our division in 1996, and we had to move their employee sponsored 401K's elsewhere. I consolidated the 401K's with my other funds into a Rollover IRA at Fidelity. There's no way records are available to come up with the info.

Sometimes you have to be careful filling out the tax forms, and if the tax man disagrees, face the issue then. Most times, the subject will never come up.

I'm just thankful Social Security and Defined Pensions are non-tax'd in my state. But RMD's start next year, and I've got to look into the laws at how they're handled by the state.