Whether you have to pay state taxes on a 401(k) withdrawal depends on the state where you live when the money comes out. Nine states have no individual income tax at all, four more fully exempt qualified retirement distributions, and the rest tax your withdrawal as ordinary income, though many soften the hit with age-based exclusions.
The State You Live in Is the One That Taxes You
Federal law settles this cleanly. Under 4 U.S.C. § 114, no state can tax the retirement income of someone who is not a resident of that state.1Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income The statute specifically covers 401(k) plans, IRAs, 403(b) plans, 457 plans, and government pensions.
If you built your 401(k) over decades in a high-tax state and then retired to a no-tax state, your former state has no claim on the distributions. The only state with authority to tax the withdrawal is your domicile — your permanent home — at the time you take the money out.1Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income
One narrow exception: certain non-qualified deferred compensation that falls outside the federal statute’s definition of retirement income can still be taxed by a former state. Standard 401(k) distributions are protected.
States That Charge Nothing on a 401(k) Withdrawal
Two groups of states leave your distribution alone.
No Individual Income Tax
Nine states impose no broad-based individual income tax, so a 401(k) withdrawal passes through tax-free at the state level:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Washington taxes long-term capital gains above a threshold, but that tax 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 New Hampshire repealed its interest and dividends tax effective January 1, 2025, and is now fully income-tax-free.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 With a Full Retirement Exemption
Illinois, Iowa, Mississippi, and Pennsylvania tax wages and investment income but fully exempt qualified retirement plan distributions. Live in one of these states and your 401(k) withdrawal faces zero state tax even while your other income is taxed. Some of these exemptions require that you meet the plan’s normal distribution requirements, so confirm your state’s conditions before assuming the full exclusion applies.
States That Exempt Only Part of It
A larger group of states taxes retirement income but gives older taxpayers an age-based exclusion or deduction. Eligibility ages run from 59½ to 65, and the 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 annually, including 401(k) distributions. Taxpayers between 62 and 64 can exclude up to $35,000. New Jersey allows taxpayers 62 and older to exclude up to $100,000 on a joint return, but only if total income stays at or below $150,000. Cross that threshold and the exclusion disappears entirely.
Phase-outs are where people get hurt. A single large withdrawal can push your income past the cap and wipe out the exclusion for the whole year. Splitting a big distribution across two tax years can sometimes keep you under the limit both years. Run the numbers against your state’s rules before you request the money.
States That Tax the Full Distribution
Most states treat 401(k) withdrawals as ordinary income with no special exclusion. The withdrawal stacks on top of your other income and the state taxes the total at its marginal rates. Top state rates run from roughly 2% to over 13%, so the size of the bill varies widely with both where you live and how much you take.
A $100,000 distribution in a state with a 9% top rate can generate several thousand dollars in state tax on its own, before anything you owe the IRS. In these states the state tax deserves as much planning as the federal piece.
Roth 401(k) Withdrawals Work Differently
Everything above assumes a traditional 401(k): money contributed pre-tax and not yet taxed. Roth 401(k) contributions were already taxed before they went 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 Roth 401(k) distribution is qualified, and therefore fully tax-free, when both of these are true:
- At least five years have passed since your first Roth 401(k) contribution to that plan.
- You are at least 59½, permanently disabled, or the distribution goes 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 This matters most when you change jobs and take a distribution before the five-year clock runs out.
Withholding and Estimated Payments
Federal law requires your plan administrator to withhold 20% from any eligible rollover distribution you take directly instead of rolling it to another plan.4Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income That 20% is federal only. State withholding runs on its own rules.
Most states let you pick a withholding percentage or dollar amount on the distribution form. If you live in a no-tax state or qualify for a full retirement exemption, you can elect zero. Many plan administrators default to zero state withholding unless you opt in, so getting the right amount withheld is on you.
Under-withholding doesn’t create a problem with your plan administrator — they send what you told them to send. Your state tax agency, though, may assess an underpayment penalty when you file. The federal safe harbor, which most states mirror, lets you avoid the penalty if your total payments cover at least 90% of the current year’s tax or 100% of last year’s. If your prior-year adjusted gross income exceeded $150,000, that figure bumps to 110%.5Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax6Internal Revenue Service. IRM 20.1.3 Estimated Tax Penalties
Federal estimated tax payments are due April 15, June 15, September 15, and January 15 of the following year, and most states follow the same schedule.7Internal Revenue Service. Estimated Tax – Quarterly Payment Due Dates If you took a distribution midyear with no state tax withheld, catch up on the next quarterly deadline rather than waiting until you file.
Early and Hardship Withdrawals
Taking money out before age 59½ triggers the same state income tax as any other distribution, plus a 10% federal additional tax unless an exception applies. Exceptions include permanent disability, substantially equal periodic payments, and certain medical expenses.8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Most states don’t add a separate penalty on top of the federal 10%. A few do. California imposes its own 2.5% additional tax on early retirement distributions. Check your state’s rule before pulling money early.
A hardship withdrawal gets the same treatment: the IRS taxes it as a standard distribution, and the 10% additional tax applies if you’re under 59½ with no exception.9Internal Revenue Service. Hardships, Early Withdrawals and Loans Your state layers its regular income tax on top.
Rollovers Don’t Count as Withdrawals
Moving 401(k) money into an IRA or a new employer’s plan through a rollover isn’t a taxable event at the federal or state level, as long as you do it right.10Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
A direct rollover sends the money straight from your old plan to the new one, with nothing reported as taxable income to the IRS or any state. An indirect rollover puts the check in your hands and gives you 60 days to deposit the full amount into a qualifying account. Make the deadline and you owe no tax. Miss it and the entire distribution becomes taxable at the federal and state level, with the 10% early withdrawal penalty on top if you’re under 59½. Your plan administrator still withholds 20% for federal taxes on the indirect route, so you’ll need to make up that shortfall from other funds to roll over the full balance.4Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income