Colorado should recognize impact of Required Minimum Distribution on seniors

I have taken exception with the federal Required Minimum Distribution tax law on several occasions. The RMD is federal law that requires withdrawals from taxpayers over 72 years of age from their retirement accounts every year based on a lifetime expectancy table published by the IRS. To simplify, a 72-yearold retiree with $500,000 retirement account balance is required to withdrawal every year about 4 percent ($20,000) from their retirement funds. I have several complaints with the requirements of the RMD, but I want to bring attention to the consequences of the RMD on Colorado state income tax calculations.

First, your RMD withdrawal drops to your federal AGI and gets reflected on your Colorado taxes as taxable income. As such, any and all RMD withdrawals get taxed at 4.4% on your Colorado state income taxes. That’s $880 state tax on that $20,000 RMD withdrawal. Colorado loves the RMD because it doesn’t have to justify why you are being taxed that $880. It’s the federal government that requires the RMD, Colorado gets to be the fortunate beneficiary of the RMD. Let’s remember the federal government taxed your RMD withdrawal at your marginal tax rate on your federal taxes. For most retirees that raises tax on that RMD to 16.4% (12% federal and 4.4% state) or $3,280. Remember RMD withdrawals are from your retirement funds, not earned income.

Colorado does allow subtractions from state income tax calculations (maximum $24,000) for social security payments and retirement withdrawals. It is likely that $24,000 subtraction will be offset by Social Security benefit payments. As such, RMD withdrawals will be taxed at 4.4%.

It is time that Colorado recognizes the impact of the RMD on seniors and allows a separate and reasonable deduction on their Colorado state income taxes for RMD withdrawals.

— Larry Roche, Windsor