Do you pay state tax on 401k withdrawals? It depends on where you live. Nine states tax no withdrawal at all, several more fully exempt qualified retirement income, and the rest tax each withdrawal as ordinary income.
Key Takeaways
- Nine states levy no broad individual income tax, so a 401k withdrawal is not taxed by the state there, per the Tax Foundation 2026 rate data.
- A handful of income-tax states (Illinois, Pennsylvania, Mississippi, and Iowa for those 55 or older) fully exempt qualified retirement distributions, confirmed by each state revenue department.
- Most remaining states tax 401k withdrawals as ordinary income; California rates run from 1% to 13.3% with no retirement-income exclusion (Tax Foundation).
- Under 4 U.S.C. section 114, no state may tax the retirement income of someone who is not a resident or domiciliary of that state.
- Pennsylvania and IRAs generally require reaching age 59½ before distributions are state-exempt; earlier payouts can be taxed (PA Department of Revenue).
- Your state of residence in the year you take income or run a Roth conversion is one input into conversion timing.
State Tax on 401(k): The Basics
Figures for the 2026 tax year, verified against IRS primary sources.
Do you pay state tax on 401k withdrawals in every state?
No. Whether a 401k withdrawal is taxed by your state depends entirely on that state’s rules, and the treatment falls into three broad groups. At the federal level a traditional 401k withdrawal is taxed as ordinary income (IRS 401k plans), but each state decides separately whether to tax the same dollars.
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The three groups are: states with no individual income tax, states that keep an income tax but fully exempt qualified retirement distributions, and states that tax the withdrawal as ordinary income (some with partial or age-based exclusions). A fourth rule, the federal source-tax law, governs what happens after you move.
If your account is a Roth 401k rather than a traditional one, qualified distributions are generally free of both federal and state tax, because the contributions were already taxed. This guide focuses on traditional pre-tax balances, which is where state treatment actually varies. For the mechanics of the account itself, see how a 401k works and the broader question of whether you owe tax on 401k withdrawals after 65.
State categories are illustrative groupings; named examples are verified against the sources cited in this article.
Which states charge no tax on 401k withdrawals?
Nine states impose no broad-based individual income tax, so residents there owe nothing to the state on a 401k withdrawal. Per the Tax Foundation, those states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Two of these deserve a footnote. New Hampshire historically taxed interest and dividends, but the New Hampshire Department of Revenue confirms that tax was fully repealed for tax periods beginning on or after January 1, 2025, so retirement withdrawals face no state tax there. Washington levies a tax on certain high-value long-term capital gains, but that does not reach an ordinary 401k distribution.
A retiree who relocates to one of these states before drawing down a large pre-tax balance changes only the state side of the bill; the federal tax on the withdrawal is unchanged. This is one reason some households study moving to a no-tax state before a Roth conversion.
Which states fully exempt qualified retirement income?
Several states keep an income tax on wages but fully exempt qualified retirement distributions, which means a 401k withdrawal is subtracted before the state rate applies. Illinois is the clearest example: its Publication 120 lets residents subtract the federally taxed portion of distributions from qualified plans, including 401k, IRA, and government retirement plans, with no age or income cap before the flat 4.95% rate.
Pennsylvania exempts distributions from qualified employer plans taken after retirement age and IRA distributions after age 59½, per the Pennsylvania Department of Revenue; early distributions without a qualifying exception can still be taxed. Mississippi likewise exempts qualified retirement income once you meet the plan’s retirement requirements, though early distributions remain taxable.
Iowa is a newer entrant. Under a 2023 law summarized by the Iowa Department of Revenue, retirement income (including 401k, IRA, and pension distributions) is excluded from state tax for taxpayers age 55 or older. Note that this group treats retirement-plan income differently from wages, so part-time work in retirement can still be taxed. Pension income has its own state patchwork, covered in how a pension is taxed.
Figures verified against Tax Foundation and state revenue department sources cited in the text.
Which states tax 401k withdrawals as ordinary income?
Most states with an income tax treat a traditional 401k withdrawal as ordinary income, applying the same rate schedule they use for wages. California is the sharpest example: the Tax Foundation reports state rates from 1% to 13.3%, and California offers no age-based retirement-income exclusion for 401k or IRA distributions, plus an additional 2.5% state charge on distributions taken before age 59½.
Between the full-exemption states and the full-tax states sits a large middle: many states offer partial retirement-income exclusions that are capped by dollar amount, age, or income level. Because those caps change frequently and vary widely, a resident should confirm the current-year figure with their own state revenue department rather than assume a fixed number. The category exists; the specific dollar cap is what shifts.
Social Security is treated more generously than 401k income in most states, and follows separate federal rules explained in the taxation of Social Security benefits. Coordinating which account you tap in which year is the heart of a tax-efficient withdrawal strategy.
How states treat a 401k withdrawal at a glance
The table below groups the four rules that decide whether your state taxes a 401k withdrawal, with verified example states and the primary source for each.
| Category | How a 401k withdrawal is treated | Verified examples | Primary source |
|---|---|---|---|
| No individual income tax | Not taxed by the state | AK, FL, NV, NH, SD, TN, TX, WA, WY | Tax Foundation; NH DOR |
| Fully exempts qualified retirement income | Withdrawal subtracted before the state rate applies | Illinois; Pennsylvania (after retirement age); Mississippi; Iowa (age 55+) | IL, PA, MS, IA revenue departments |
| Taxes as ordinary income | Withdrawal taxed at state rates (some states offer capped or age-based partial exclusions) | California (1% to 13.3%) and many others | Tax Foundation |
| Former state after you move | Cannot tax your retirement income | Applies nationwide | 4 U.S.C. section 114 |
Can another state tax your 401k withdrawals after you move?
No. A former state cannot reach back and tax your 401k withdrawals once you have moved. The federal source-tax law, 4 U.S.C. section 114, states plainly that no state may impose an income tax on the retirement income of an individual who is not a resident or domiciliary of that state.
The statute covers a broad list of retirement income, including qualified 401a trusts, 401k and IRA distributions, 403a and 403b annuities, 457 governmental plans, and SEP-IRAs, generally as periodic payments or distributions after employment ends. In practice, a retiree who earned a pension in a high-tax state and then establishes residency elsewhere is taxed by the new home state, not the old one.
How does your state affect Roth conversion timing?
State treatment is a real input into Roth conversion planning because a conversion is taxed like a distribution in the year you do it. In a no-tax or retirement-exempt state, the conversion carries only a federal cost; in a full-tax state, the same conversion adds a state layer on top.
That is why the question of state residency often surfaces alongside how much tax a conversion will cost and whether to convert in a low-income year. Retirees weighing a relocation sometimes model conversions before and after a move; a financial professional can help compare those paths rather than assume one is right. For a deeper look, see the companion pieces on states that do not tax retirement income and Roth conversion state taxes.
Frequently asked questions
Do you pay state tax on 401k withdrawals if you live in Florida or Texas?
No. Florida and Texas are among the nine states with no individual income tax, so a 401k withdrawal is not taxed at the state level there, according to Tax Foundation 2026 data. Federal tax on the withdrawal still applies.
Does Illinois tax 401k and IRA withdrawals?
No. Illinois Publication 120 allows residents to subtract the federally taxed portion of distributions from qualified plans, including 401k and IRA distributions, so those amounts are effectively exempt from the state’s flat income tax, with no age or income cap.
Can my old state tax my 401k after I move away?
No. Under 4 U.S.C. section 114, a state cannot impose income tax on the retirement income of someone who is not a resident or domiciliary. Once you have genuinely changed your domicile, only your new state can tax ongoing distributions.
Does a state tax a Roth conversion the way it taxes a 401k withdrawal?
Generally yes. A conversion from a traditional account is taxed as income in the year you do it, so a state that taxes 401k withdrawals will usually tax the converted amount. States that exempt qualified retirement income often extend similar treatment; confirm with your state revenue department.
Which states fully exempt retirement income even though they have an income tax?
Illinois, Pennsylvania (for distributions after retirement age), Mississippi (once plan retirement requirements are met), and Iowa (for taxpayers age 55 or older) fully exempt qualified retirement distributions, per each state’s revenue department.
Is there an extra state penalty for early 401k withdrawals?
Sometimes. California, for example, applies an additional 2.5% state tax on early distributions taken before age 59½, on top of ordinary income tax. Pennsylvania and Mississippi may tax early distributions that would otherwise be exempt after retirement age.
Do states tax 401k withdrawals differently from Social Security?
Usually yes. Many states that tax 401k withdrawals still exempt Social Security benefits partly or fully. Social Security follows its own federal provisional-income rules, so the two income sources are taxed on separate tracks.
Planning a conversion across state lines?
State treatment is one variable in a multi-year Roth conversion plan. A fee-only fiduciary can model how your state of residence interacts with federal brackets and future required distributions. Learn more at Q3 Advisors on Roth conversion state taxes.
Methodology: Figures are sourced from primary and authoritative material (IRS.gov, state revenue departments, 4 U.S.C. section 114, and Tax Foundation rate data) verified in 2026; anonymous forum anecdotes were excluded because this is a financial (YMYL) topic.
This article is for educational purposes only and is not individualized investment, tax, or legal advice. Consult a qualified professional about your specific situation.
