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Determining portion of RMD attributable to SEP IRA. Hawaii supposedly does not tax SEP IRA RMDs.

Forum|Forum|1 year ago
June 6, 2024
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Fidelity reports total RMD from all IRA accounts on 1099R, so no way to tell what was from SEP IRA.

Some SEP IRA accounts have also been rolled over into traditional IRAs so holdings may be comingled.

What can be done to avoid paying Hawaii income tax on SEP IRA portion?

Best answer by dmertz

"Fact is, Fidelity provides one 1099R for all your RMDs for the year."

Only if you satisfy all of your IRA RMDs with one or more distributions from a single account. When distributions are made from different accounts, a separate Form 1099-R is issued for each account with, as required by the IRS, the Account Number box on the form showing the number of the account from which particular distributions were made. As encouraged by the IRS, Fidelity includes the account number on all Forms 1099-R.

With regard to the Hawaii pension exclusion, the information that I referenced indicates that all that seems to matter is the type of account from which the distribution is made, not the reason for the distribution. This would mean that any IRA RMDs that you satisfy with distributions from a regular traditional IRA, which is not considered by Hawaii to be a pension account, would not qualify for exclusion. Any IRA RMDs that you satisfy with distributions from the (not commingled) SEP IRA, which is considered by Hawaii to be a pension account, would qualify for exclusion.

D

dmertz

Employee

As far as I know, Fidelity generates a separate Form 1099-R for each account from which distributions are made on which it shows the total of the distributions made just from that account during the year. Even if Fidelity did combine distributions from separate accounts onto a single Form 1099-R, the transaction records that Fidelity provides would show the separate distributions from each account.

Whether or not a distribution is an RMD seems to have no bearing on whether or not the distribution is exempt from Hawaii tax. What seems to matter is the nature of the account from which the distribution is made.

I can only guess as to how accounts containing comingled funds would be treated. The instructions for Form N-11 and Hawaii TIR 96-5 appear to indicate that Hawaii considers as exempt from tax only distributions from retirement accounts that contain funds attributable entirely to amounts funded by employer contributions and not by employee contributions, so I would guess that distributions from IRAs (including SEP IRAs) that contain funds derived from employee or individual contributions would not be excludible.

G

GERRAuthor

Thanks for your response. Fact is, Fidelity provides one 1099R for all your RMDs for the year. And as you know, you can satisfy the RMD for a SEP IRA by taking the distribution from another IRA account. I don't know if this situation has been addressed by Hawaii Tax System.

D

dmertzAnswer

Employee

"Fact is, Fidelity provides one 1099R for all your RMDs for the year."

Only if you satisfy all of your IRA RMDs with one or more distributions from a single account. When distributions are made from different accounts, a separate Form 1099-R is issued for each account with, as required by the IRS, the Account Number box on the form showing the number of the account from which particular distributions were made. As encouraged by the IRS, Fidelity includes the account number on all Forms 1099-R.

With regard to the Hawaii pension exclusion, the information that I referenced indicates that all that seems to matter is the type of account from which the distribution is made, not the reason for the distribution. This would mean that any IRA RMDs that you satisfy with distributions from a regular traditional IRA, which is not considered by Hawaii to be a pension account, would not qualify for exclusion. Any IRA RMDs that you satisfy with distributions from the (not commingled) SEP IRA, which is considered by Hawaii to be a pension account, would qualify for exclusion.