Updated October 4, 2026. Quick answer: It depends on how the account was funded. Hawaii’s N-11 instructions say “Hawaii does not tax qualifying distributions from an employer-funded pension plan”. For deferred compensation plans such as a 401(k), the booklet says “Distributions from a deferred compensation plan may be partly or fully taxable”, and IRAs funded by your own contributions are treated as your own investments.
More state retirement-income schedules, line by line: Hawaii Form N-11 line 13.
Inherited an IRA? What the state’s own documents say about taxing those withdrawals: Hawaii tax on inherited IRA withdrawals.
Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does Hawaii tax 403(b) and 457(b) withdrawals.
Taking money out of your TSP? How the state taxes it, from its own tax documents: Does Hawaii tax TSP withdrawals?.
Inheriting from, or planning for, someone in this state? Whether the state has an inheritance tax, from its own tax documents: Does Hawaii have an inheritance tax?.
What Hawaii does with 401(k) and IRA withdrawals
The statute excludes “Any compensation received in the form of a pension for past services”. The booklet says early distributions subject to the 10% federal penalty tax “do not qualify and are taxable”. It prints no age threshold and no dollar cap for the pension subtraction, and no separate rule for ordinary qualified Roth distributions.
| Item | What the documents say |
|---|---|
| Employer-funded pension | Not taxed if paid by reason of retirement, disability or death and the employee did not contribute |
| 401(k) and other deferred compensation | May be partly or fully taxable |
| IRA not funded through a SEP | May be fully or partly taxable, depending on deductible or nondeductible contributions |
| Early distributions | Taxable if subject to the 10% federal penalty tax |
| State rates | Graduated, 1.40% to 11.00% (2025) |
| Source | Hawaii Department of Taxation, 2025 N-11 instructions; HRS 235-7 and 235-51 |
A $40,000 withdrawal
The booklet gives no single answer for a $40,000 withdrawal. If it comes from an employer-funded plan the employee never contributed to, it can be subtracted. If it comes from a 401(k), it may be partly or fully taxable. If it comes from an IRA you funded, the taxable part depends on the contributions you deducted.
What changes in 2026
The documents read print no 2026 change to the pension treatment.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal tax on these withdrawals in Publication 590-B, Distributions from Individual Retirement Arrangements and Publication 575, Pension and Annuity Income.
Related: whether Hawaii taxes pensions, how Hawaii taxes retirement income, whether Hawaii taxes Roth conversions, and the state-by-state table of 401(k) and IRA withdrawal tax.
Find the right next step for your situation
About how much do you have invested? Pick the range that fits; your next step appears immediately below.
Compare vetted advisors for retirement withdrawals
If your portfolio is $250,000 or more, this connects you (free, with no obligation to hire anyone) with 2 to 3 vetted advisors.
Before you start, what actually happens. The matching service is run by WiserAdvisor, an independent advisor-matching company. It opens on their site, asks for your ZIP code and a few questions, and matches you with 2 to 3 vetted advisors. It is free to you.
WiserAdvisor states the service is built for portfolios of $250,000 and above. By submitting, you consent to emails, phone calls and text messages from WiserAdvisor and up to three advisors, so expect to be contacted. Clear Money Guide may earn a referral payment for a qualifying completed form, whether or not you ever hire anyone.
Opens on WiserAdvisor’s site in a new tab.
See how an advisor plans your withdrawals
Price the destination before you decide. The matching service below introduces you to advisers who pay to meet you.
Before you start, what actually happens. The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide may earn a referral payment through this service, whether or not you ever hire anyone. This is free to you and there is no obligation to hire anyone.
The Kapitalwise form opens here; you stay on this page.
What happens when you press the button
It asks about nine questions: age, investable assets, location; then your name, email and phone number, and verifies the phone by text. Nothing loads and nothing reaches Kapitalwise until you press the button.
Prefer flat-fee or hourly pricing instead? Compare ranges here.
Answer againSources
- 2025 Hawaii Resident Income Tax Instructions (Form N-11): https://files.hawaii.gov/tax/forms/2025/n11ins.pdf
- Hawaii Revised Statutes 235-7, Other provisions as to gross income, adjusted gross income, and taxable income: https://data.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0007.htm
- Hawaii Revised Statutes 235-51, Tax imposed on individuals; rates: https://data.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0051.htm
Sources: the primary documents linked above, read on October 4, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.