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Strategies & Market Trends : Value Investing
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To: Ken Ludwig who wrote (50159)11/25/2012 2:29:06 PM
From: CusterInvestor  Read Replies (2) of 78748
 
Since MI is a state I have considered moving to, I decided to look further into this tax.
So far I found this:

michigan.gov

Which pension benefits will be taxed?

Under Michigan law, qualifying pension and retirement benefits include most payments that are reported on a 1099-R for federal purposes. This includes defined benefit pensions, IRA distributions, and most payments from defined contribution plans.

Payments received before the recipient could retire under the provisions of the plan or benefits from 401(k), 457, or 403(b) plans attributable to employee contributions alone are taxable under Michigan law.

We are financial planners and are working with a custodian to withdraw money from a Roth IRA for one of our clients. Is a distribution from a Roth IRA taxable and subject to the 4.35% withholding?

Law (MCL 206.703) requires pension withholding on any IRA distributions that will be subject to Michigan tax at the end of the year on the beneficiary’s Michigan income tax return. In general, distributions from Roth IRAs are exempt from both Michigan and federal income taxes, and no pension withholding would be required.

However, if part of the distribution is taxable, then Michigan pension withholding would be required on the taxable portion of the distribution. A portion of the distribution from a Roth IRA may be taxable when a recipient receives a nonqualified distribution. Nonqualified distributions from Roth IRAs are determined by reference the Internal Revenue Code.
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