Interest on treasury bills in IRA exempt from state income tax?

Forum|Forum|2 years ago
June 5, 2023
3 replies
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I have treasury bills in a taxable account and the interest is exempt from California state income tax. I also have treasury bills in my IRA and was wondering if it's possible that this interest income could also somehow be treated as exempt from state income tax when distributed from my IRA.

Not A Product Question

Critter-3

ALL income of any kind in a tax shelter like an IRA is tax DEFFERED never tax exempt. The income is reported when you take distributions from the IRA and the distribution is always considered ordinary income.

Opus 17

Employee

Unfortunately, putting tax-exempt investments in an IRA means you lose the tax exempt benefit. Everything you contribute is pre-tax, therefore everything you withdraw is taxed. There is no way to track separate assets or asset classes, everything you withdraw is taxed, end of story. You may want to rethink your investment choices.

ssr025Author

Thanks for responding. I figured that was the case but wanted to double check to confirm in case there was some type of workaround that would allow the state income tax exemption.

HDShrader327

If you download Oregon Pub 17 and start reading on page 77, you will find that the accumulated Interest from Treasury bonds, etc are tax exempt for an IRA distribution on a pro-rated basis. There is a very good worksheet that demonstrates how this works. I would imagine that this would have to be the case for all states, but maybe not spelled out as well as Oregon does in Pub 17. Believe me, if Oregon didn't have to exempt it from income taxes, they wouldn't.

*** I can not vouch for any State other than Oregon ***

Mike9241

Tell us the state if it isn't Oregon. state laws vary and some states do tax the entire IRA distribution even if it there is US interest involved. Others like Illinois don't tax IRA distributions at all.