Updated October 16, 2026. Quick answer: Hawaii does not tax qualifying distributions from an employer-funded pension plan, but its instructions class an IRA you fund yourself as “your own investments” that may be fully or partly taxable, and they do not say how an inherited IRA is treated.
Hawaii at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Employer-funded pension distributions are not taxed; self-funded IRAs may be fully or partly taxable |
| Do the state’s documents address beneficiaries? | Not addressed: the documents read do not name inherited IRAs |
| Retirement exclusion or credit | No dollar cap stated; the pension exemption covers qualifying employer-funded plan distributions, not IRAs you fund yourself |
| Rate in the documents read | Highest bracket in HRS 235-51 prints 11.00% |
| State inheritance or estate tax | Only mentioned as nondeductible: the N-11 instructions list federal estate and gift taxes and inheritance tax among taxes you cannot deduct |
| Changed for 2026? | The documents read are the 2025 instructions and do not discuss any change for 2026 |
What the Hawaii documents say
The N-11 instructions say that for a distribution to qualify as nontaxable, it must be “paid by a pension plan by reason of retirement, disability, or death”. That test sits in the section on employer-funded pension plans, which Hawaii does not tax.
For retirement vehicles you fund yourself, the instructions say annuity plans and Individual Retirement Accounts (IRAs) not funded through a SEP plan are considered to be “your own investments” and that distributions from them may be fully or partly taxable, depending on whether the IRA includes deductible or nondeductible contributions.
The instructions also say “A rollover IRA is treated as a continuation” of the original plan that provided the money. HRS 235-7 excludes from gross income “Any compensation received in the form of a pension for past services”.
The federal 10-year rule and your Hawaii tax year
IRS Publication 590-B says a beneficiary may be required to take the entire account balance by the “end of the 10th year following the year of the owner’s death”, with exceptions for certain beneficiaries. Because the balance generally has to come out within that window, the timing of each withdrawal decides which tax year it lands in. See the 10-year rule and annual RMDs, lump sum versus spreading withdrawals and inherited IRA rules.
Withholding and other state taxes
Whether a state withholds from a withdrawal is a separate rule: see state withholding on retirement withdrawals. For Hawaii’s own death taxes, see Hawaii inheritance tax.
What the documents do not say
- The documents read do not mention inherited accounts or beneficiaries of retirement accounts.
- They do not say whether a distribution that a beneficiary receives from a self-funded IRA is taxable, beyond saying such IRAs may be fully or partly taxable.
- The instructions list federal estate and gift taxes and inheritance tax among the taxes you cannot deduct, and they say nothing about a deduction or credit for income in respect of a decedent.
Common mistakes
- Assuming Hawaii’s rule for your own retirement income also covers an account you inherited: read whether its documents address beneficiaries, and confirm the point with a Hawaii preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether Hawaii taxes 401(k) and IRA withdrawals, Hawaii retirement taxes, Hawaii inheritance tax, inherited IRA rules, spouse versus non-spouse beneficiary rules, and state withholding on retirement withdrawals.
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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: https://data.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0007.htm
- Hawaii Revised Statutes 235-51: https://data.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0051.htm
- IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs): https://www.irs.gov/pub/irs-pdf/p590b.pdf
Sources: the primary documents linked above, read on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.