Whether you owe state taxes on a 401(k) withdrawal comes down to where you live when the money comes out. Nine states have no individual income tax, and a handful of others fully exempt qualified retirement distributions, so roughly a quarter of retirees pay nothing at the state level. Everyone else pays state income tax on the distribution, though some states soften it with age-based exclusions that shelter tens of thousands of dollars a year.
Your Current State, Not the One Where You Earned It
The state with authority to tax your 401(k) distribution is the one where you live when you take it. Federal law is explicit: 4 U.S.C. § 114 bars any state from taxing the retirement income of someone who is not a resident there.1Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income The protection covers 401(k) plans, IRAs, 403(b) and 457 plans, and government pensions.
If you spent 30 years contributing to a 401(k) in a high-tax state and then move somewhere with no income tax, your former state cannot come after those distributions. The only state that can tax you is your domicile — the permanent home where you intend to stay — at the time of the withdrawal.1Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income Non-qualified deferred compensation that falls outside the federal statute’s definition of retirement income is a narrow exception, but standard 401(k) distributions are protected.
States That Don’t Tax 401(k) Withdrawals
Two groups of states let you take a 401(k) distribution without owing any state income tax.
No Individual Income Tax
Nine states impose no broad-based individual income tax, so 401(k) withdrawals pass through untaxed:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Washington’s tax on long-term capital gains above a threshold does not apply to 401(k) distributions or other retirement account transactions. New Hampshire repealed its interest and dividends tax effective January 1, 2025, and is now fully income-tax-free.
Income Tax but Full Retirement Exemption
Illinois, Iowa, Mississippi, and Pennsylvania tax wages and investment income but fully exempt qualified retirement plan distributions. If you live in one of these, your 401(k) withdrawal is state-tax-free even though the state taxes other income. Some of these exemptions require that the distribution meet the plan’s normal distribution rules, so confirm the specific conditions before assuming the full exclusion applies.
States With Age-Based Partial Exclusions
A larger group taxes retirement income but gives older taxpayers a break through age-based exclusions. Eligibility ages vary (commonly 59½, 62, or 65), and exclusion amounts range from a few thousand dollars to six figures.
Georgia lets taxpayers 65 and older exclude up to $65,000 of retirement income a year, including 401(k) distributions; those between 62 and 64 get up to $35,000. New Jersey allows taxpayers 62 and older to exclude up to $100,000 in retirement income on a joint return, provided total income stays at or below $150,000. Above that threshold, the exclusion disappears entirely.
Phase-outs like New Jersey’s are where large withdrawals cause trouble. A single big distribution can push your income past the cap and wipe out the exclusion for the whole year. Splitting a planned withdrawal across two tax years can keep you under the threshold in both. The math is simple; the mistake is not doing it before you request the check.
States That Fully Tax 401(k) Distributions
The largest group of states treats 401(k) distributions as ordinary income with no special exclusion. Your withdrawal stacks on top of your other income and is taxed at the state’s marginal rates. Top state rates range from roughly 2% to over 13%, so identical withdrawals produce very different bills depending on residence. A $100,000 distribution in a state with a 9% top rate can generate several thousand dollars in state tax on top of federal.
Roth 401(k) Money Is Treated Differently
Everything above concerns traditional pre-tax 401(k) distributions. Roth 401(k) contributions were already taxed going in, so qualified distributions come out tax-free at both the federal and state level.2Internal Revenue Service. Roth Account in Your Retirement Plan A distribution is qualified when at least five years have passed since your first Roth 401(k) contribution to that plan, and you’re 59½ or older, permanently disabled, or the money is going to a beneficiary after your death.
If a Roth distribution doesn’t meet both conditions, the earnings portion is taxable as ordinary income at the federal and state level. Your contributions still come out tax-free because you already paid tax on them.3Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts
Early Withdrawals and State Add-On Penalties
Pulling money before 59½ triggers the same state income tax as any other distribution, plus the federal 10% additional tax unless a specific exception applies.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Federal exceptions include permanent disability, substantially equal periodic payments, and certain medical expenses.
Most states don’t add a separate early-withdrawal penalty — they just tax the distribution as ordinary income. A few do. California, for example, imposes its own 2.5% additional tax on early retirement distributions on top of the federal 10%. Check whether your state adds a penalty before you run the numbers on an early withdrawal.
Hardship withdrawals get the same treatment. The IRS taxes them as regular distributions, and the 10% additional tax applies if you’re under 59½ with no qualifying exception.5Internal Revenue Service. Hardships, Early Withdrawals and Loans State income tax stacks on top.
Getting Withholding Right on a Distribution
Federal law requires your plan administrator to withhold 20% from any eligible rollover distribution paid to you directly.6Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income That 20% covers federal tax only. State withholding runs on its own track, and each state sets its own rules.
Most plans let you choose a state withholding percentage or dollar amount on the distribution form. If you live in a no-tax state or qualify for a full retirement exemption, elect zero. Many administrators default to zero state withholding unless you actively request it, so the responsibility is yours. Under-withholding doesn’t cause a problem with the plan, but your state can assess an underpayment penalty when you file.
Estimated Payments if You Skip Withholding
A large withdrawal with little or no state tax held back can trigger an underpayment penalty. The federal safe harbor, which most states follow, avoids penalties when your total payments cover at least 90% of the current year’s liability or 100% of last year’s (110% if your prior-year AGI exceeded $150,000).7Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax8Internal Revenue Service. IRM 20.1.3 Estimated Tax Penalties
Federal estimated payments are due April 15, June 15, September 15, and January 15 of the following year, and most states use the same schedule.9Internal Revenue Service. Estimated Tax – Quarterly Payment Due Dates If you took a midyear distribution without state withholding, catch up at the next quarterly deadline rather than waiting until your return.
Required Minimum Distributions Get Taxed Too
At age 73, you must start taking RMDs from a traditional 401(k) each year. RMDs are taxed as ordinary income at both the federal and state level, with no special exemption for being mandatory.10Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs They also count toward any state retirement income exclusion the same as a voluntary withdrawal.
RMDs grow larger with age because the IRS calculation uses a declining life expectancy factor. A distribution that fits under your state’s exclusion at 73 can exceed it by 80. Drawing down the account in lower-income years before RMDs begin is one way to manage the cumulative state tax over a longer retirement.
One planning note on rollovers: moving 401(k) money to an IRA or another employer plan through a direct rollover isn’t a taxable event federally or at the state level, so nothing on this page applies to a properly executed rollover.11Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions It’s only actual distributions that put you in the state tax picture described above.