I live in Illinois with no RMD tax but Minnesota is taxing my RMD

Forum|Forum|1 year ago
February 6, 2025
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I live in Illinois with no RMD tax yet Minnesota is taxing me on my RMD because I have income from a Minnesota LLC. Is there anyway to avoid this Minnesota tax?

Best answer by TomD8

I already have column B line 5 as zero. When MN computes the tax using the Fed AGI, I'm looking for a way to take the RMD out of the tax calculation

Other states do this as well. (New York is the prime example)

First, they calculate your MN tax as if all your taxable income were being taxed by MN. Then they multiply that number by the % of your income that is in fact taxable by Minnesota, in order to determine your actual Minnesota tax due.

MN would tell you that your RMD is not being taxed.

Might seem unfair, but that's how they do it.

SabrinaD2

Minnesota taxes your Required Minimum Distribution (RMD) because you have income from a Minnesota LLC. Here are some strategies to potentially reduce or avoid this tax:

Qualified Charitable Distributions (QCDs): Transfer your RMD directly to a qualified charity. This can satisfy your RMD requirement without being included in your taxable income. Learn more
Qualified Longevity Annuity Contract (QLAC): Transfer up to $200,000 of your retirement plan assets to a QLAC. This reduces the amount subject to RMDs and delays taxes until you start receiving annuity payments. Learn more
Roth IRA Conversion: Convert your traditional IRA to a Roth IRA. Roth IRAs are not subject to RMDs, but note that the conversion itself is a taxable event. Learn more

willdpAuthor

Since Minnesota requires you to use the form M1NR as a non-resident, they include your 1040 AGI (which includes my RMD which is exempt in Illinois) when they compute my MN taxes. They then divide my Minnesota income from a LLC by the 1040 AGI and multiply that ratio with the 1040AGI from the MN tax table. So essentially you pay tax on RMDs even though you live in Illinois.

Is there a place on the M1NR to exclude my RMD's since Illinois doesn't tax retirement distributions.