A 401(k) withdrawal is taxed by the state where you live when you take the money, not the state where you earned it. If that state has no income tax, or specifically exempts retirement distributions, you owe nothing at the state level. If it taxes retirement income like wages, your withdrawal runs through the same brackets as a paycheck. Everything else about the state tax on a 401(k) withdrawal follows from those two facts and one federal law that stops your old state from chasing you.
States That Don’t Tax 401(k) Withdrawals
Nine states levy no individual income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Take a distribution as a resident of any of those, and no state return is triggered by the withdrawal.
A separate group has an income tax but exempts qualified retirement plan distributions from it. Illinois, Mississippi, and Pennsylvania fall into this camp, taxing wages and investment income but leaving 401(k) and IRA distributions alone. Iowa exempts pension and retirement plan income. Michigan joins the group in 2026, eliminating state tax on most retirement plan distributions.
States With Partial Exemptions Based on Age or Amount
A wider group of states taxes 401(k) income but carves out an exclusion tied to age or dollar amount. These break the tax rather than eliminate it, and the details are specific enough that you have to check your own state before assuming you qualify.
Georgia lets taxpayers aged 62 through 64 exclude up to $35,000 of retirement income per year, rising to $65,000 at age 65. Married couples where both spouses have retirement income can each claim the full exclusion. Anything above the cap is taxed at Georgia’s normal rates.
Colorado allows a subtraction of up to $20,000 for taxpayers aged 55 through 64, and up to $24,000 for those 65 and older, applied to pension and annuity income including 401(k) distributions. Delaware offers retirees 60 and older a deduction of up to $12,500 on qualified retirement plan income. Oklahoma exempts up to $10,000 for retirees 65 and older.
The variables that differ from one state to the next are the age threshold, the dollar cap, whether the exclusion is per person or per return, and which types of retirement income qualify. A 401(k) distribution might be covered while a different account isn’t.
States That Tax the Full Distribution
California, New York, and New Jersey tax 401(k) withdrawals as ordinary income, running the full amount through their standard progressive brackets with no special retirement exclusion. California’s top rate reaches 13.3%, and New York City residents pay city income tax on top of the state rate. A single large lump sum in one of these states can push you into a higher bracket than you ever hit while working.
What Happens When You Move
Federal law bars your former state from taxing your 401(k) after you leave. Under 4 U.S.C. § 114, no state may impose an income tax on the retirement income of a person who is not a resident or domiciliary of that state. The law expressly covers 401(k) plans, IRAs, 403(b) accounts, 457 plans, and most other qualified retirement arrangements.1Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income
Retire in California, move to Florida, and California cannot tax the distributions even though every dollar in the account was earned while you lived there. Only your current state of residence gets to tax the withdrawal. The rule was enacted in 1996 specifically to stop states from reaching across their borders for retirement income, and it applies regardless of where the contributions were originally made.
How Your State Decides You’re a Resident
Because residency controls the tax, the definition matters. States look at two things: your domicile and the number of days you spend within their borders.
Domicile is the state you treat as your permanent home. It’s where you’re registered to vote, where your driver’s license is issued, where your primary bank accounts sit, and where you intend to return after any time away. You can have only one domicile, and it doesn’t change until you establish a new one with clear intent.
Statutory residency is separate. Most states treat you as a statutory resident if you spend more than 183 days there during the tax year, even if your domicile is elsewhere. Someone who keeps a home in New York and spends seven months there each year can be taxed as a New York resident on their 401(k) distributions, even after changing their driver’s license to Florida. Physical presence is what trips people up.
Moving Mid-Year
If you relocate during the tax year, you’ll usually file as a part-year resident in both states. Income is allocated by residency period: a distribution received while you were still a resident of the old state is taxable there; one received after you established residency in the new state is taxable in the new state. Your new state of domicile generally offers a credit for taxes paid to the other state to prevent double taxation. Two returns, one credit, no double bill, but real paperwork.
Roth 401(k) Withdrawals
Roth 401(k) contributions go in after tax, and qualified withdrawals are tax-free federally. Because most states start from federal adjusted gross income and qualified Roth distributions don’t appear there, no state tax is triggered either.
A Roth distribution is qualified once you’ve held the account for at least five years and are 59½ or older, disabled, or taking a distribution after the account holder’s death. A non-qualified Roth distribution is only partially taxable: your original contributions come out tax-free, but earnings may be subject to federal and state income tax.
How the Type of Withdrawal Changes the Tax
Not every dollar leaving a 401(k) is treated the same way.
Standard Distributions After 59½
A withdrawal taken after age 59½ is added to your taxable income and taxed at your state’s ordinary rates, minus any exemption or exclusion the state provides. Required minimum distributions work the same way. RMDs must begin by April 1 of the year after you turn 73.2Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The mandatory nature of an RMD doesn’t spare it from state tax.
Early Withdrawals Before 59½
Taking money out before 59½ triggers the federal 10% early withdrawal penalty on top of regular federal income tax, unless an exception applies.3Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions At the state level, the distribution itself is taxed as ordinary income. The federal penalty typically doesn’t generate a separate state penalty, but the income still flows into your state return.
Hardship Withdrawals
Hardship distributions are taxable at both federal and state levels. If you’re under 59½, the federal 10% penalty applies unless a specific exception fits, such as the SECURE 2.0 emergency expense provision. Your state treats a hardship withdrawal like any other early distribution.
401(k) Loans
A 401(k) loan isn’t a taxable event as long as you repay it on schedule. The IRS treats it as a temporary transaction rather than a distribution, so no federal or state income tax is triggered.4Internal Revenue Service. Retirement Plans FAQs Regarding Loans Default on the loan, or leave your job without repaying the balance, and the outstanding amount gets reclassified as a taxable distribution. From that point your state treats it like any other withdrawal, and the early withdrawal penalty applies if you’re under 59½.
Rollovers
A direct rollover from one 401(k) to another qualified plan or IRA creates no tax at the federal or state level. With an indirect rollover, the plan withholds 20% for federal taxes when it sends you the check, and you have 60 days to deposit the full original amount into a new qualified account to avoid taxation.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions If you redeposit only what you received (missing the 20% that was withheld), that withheld portion is treated as a taxable distribution, and it flows through to your state return.
State Withholding and Estimated Payments
Federal law requires plan administrators to withhold 20% for federal income tax on most lump-sum 401(k) distributions.6Internal Revenue Service. 7Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
On the state return, transfer the taxable amount from your federal Form 1040, then apply whatever exclusion or deduction your state allows. If state tax was withheld, claim it as a credit against your state liability, just like federal withholding offsets your federal bill.
Moved during the year, or had income tied to more than one state? File a part-year resident return in each. Your new state of domicile taxes your worldwide income for the portion of the year you lived there; your old state taxes only the income received or sourced during your residency there. The domicile state provides a credit for taxes paid to the other, but the allocation is on you.