Clear Money Guide
What this state guide covers
A quick view of the questions, practical details and source notes below.
Updated August 12, 2026. Quick answer: Partly, and it turns on where the money came from. Hawaii taxes a conversion of money you put in yourself — 401(k) elective deferrals and your own IRA contributions — at its 1.4%-11% rates. Money that came from an employer-funded pension and was rolled into the IRA at retirement stays exempt when it is converted: Hawaii’s Form N-11 instructions work exactly that example and treat the rollover IRA as a continuation of the exempt pension.
The same question for annuity payments: does Hawaii tax annuity income.
The same question for military retired pay: does Hawaii tax military retirement.
The same question for gains from selling investments: does Hawaii tax capital gains.
The same question for ordinary 401(k) and IRA withdrawals: does Hawaii tax 401(k) and IRA withdrawals.
Confidence note: high. Hawaii’s own Form N-11 instructions give a worked example of converting rolled-over employer-funded pension money to a Roth and call it exempt, so this is not an inference.
Why a conversion is a different question from a withdrawal
Almost every state summary answers “how does Hawaii tax retirement income?” That is a question about distributions. A Roth conversion is not a distribution in the ordinary sense — it is a voluntary election to recognise income now in exchange for tax-free growth later. Whether a state’s retirement exclusion reaches that election is a separate question, and it is the one that decides your bill.
This is not a yes-or-no state, and it is not a dollar cap either — it turns on the source of the money in the account. The employer-funded pension slice that was rolled in at retirement converts free of Hawaii tax; the part you contributed yourself does not.
The practical consequence is a record-keeping one. If your IRA mixes rolled-over employer pension money with your own contributions, that split is what decides the Hawaii bill, and nobody will reconstruct it for you years later.
What Hawaii does with the converted amount
State income tax: graduated to 11% (12 brackets, 1.4%-11%)
How Hawaii treats IRA and plan income: Employer-funded (non-contributory) pension income fully exempt regardless of amount. Employee-funded portions taxable: 401(k) elective-deferral distributions and IRA withdrawals are taxable; contributory pensions split (employer-funded portion exempt, employee portion taxable). Per HRS § 235-7(a) and TIR 96-5.
What to ask a preparer about Hawaii
How much of this IRA is employer-funded pension money rolled over at retirement, and how do I document that split?
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How our partner relationships workConverting around a move
Converting in the year you move into Hawaii is the case that catches people. Residency at the moment of conversion is what generally determines which state gets to tax it, so a conversion executed a week before a move and one executed a week after can produce different bills.
Four separate taxes change when you move, not one: income tax on withdrawals, treatment of Social Security, estate tax, and inheritance tax. A state that looks good on conversions can be worse on the other three.
The state bill is the smaller half
Whatever Hawaii does, the conversion is federal ordinary income first. The federal bracket you land in, and whether the conversion pushes you over an IRMAA threshold two years later, will usually move more money than the state line does. The state answer tells you whether to convert here; the federal answer tells you how much to convert at once.
Paying the tax from outside the account matters more than either. Using converted dollars to pay the bill shrinks the balance that was the entire point of converting.
Figures verified against Hawaii Revised Statutes sections 235-7, 235-51, 236E-6 and 236E-8 and the 2025 Form N-11 instructions; TIR 96-5 was not re-checked on September 30, 2026.
Sources
Authority: HRS § 235-7(a); Hawaii DOTAX TIR 96-5; Haw. Rev. Stat. sec. 236E-6; Haw. Rev. Stat. sec. 236E-8.
Compiled from state statutes, session laws and revenue-department publications and adversarially verified in July 2026. Dataset confidence for Hawaii: high.
This page states what the cited authority says. It is not tax advice, and a conversion large enough to matter is worth putting in front of a preparer who can see your whole return.