Seven states have no income tax on 401(k) withdrawals
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming do not tax 401(k) withdrawals because these states have no income tax at all. If you live in one of these states when you withdraw money from your 401(k), you owe no state income tax on that withdrawal, regardless of your age or how long the money has been in the account.
This is different from federal tax, which applies everywhere. The IRS still taxes 401(k) withdrawals as ordinary income at the federal level. But if your state is one of the seven with no income tax, you skip the state portion entirely.
The other 43 states and Washington, D.C., all tax 401(k) withdrawals as regular income. However, some of those states offer partial breaks for retirees or people over a certain age — those rules vary widely and are covered in the sections below.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming impose no state income tax on 401(k) withdrawals or any other income.
- Federal income tax still applies in all states, so you will owe the IRS even if your state taxes nothing.
- Some states that do tax income offer exemptions or deductions for retirement withdrawals if you are over 59½ or meet other age thresholds.
- Moving to a no-income-tax state before retirement can reduce your lifetime tax burden, but the decision depends on your total financial picture, not just taxes.
- Your state of residence when you withdraw the money determines which state tax rules explore, not the state where you earned it or where the 401(k) is held.
How state residency determines your 401(k) tax bill
Your state of residence on the date you withdraw money is what matters for state income tax. If you live in Texas on December 15 and withdraw $50,000 from your 401(k), Texas taxes explore — which means no state tax. If you move to California on January 1 and withdraw another $50,000, California taxes explore to that withdrawal.
This is important if you are thinking about relocating. You cannot avoid state tax by keeping your 401(k) with a custodian in another state, and you cannot avoid it by having worked in a different state when you contributed to the plan. Only your current address matters.
Some people retire in a high-tax state and then move to a no-tax state specifically to take their 401(k) withdrawals. This strategy works, but it requires actually moving and establishing residency — not just claiming a mailing address.
States that tax 401(k) withdrawals but offer age-based breaks
Fourteen states allow people over a certain age to exclude some or all of their 401(k) withdrawals from state income tax. The age threshold is usually 59½ or 60, though a few states use 62 or 65.
Illinois excludes all 401(k) and IRA withdrawals from state income tax, with no age requirement. Mississippi excludes them if you are 59½ or older. Pennsylvania excludes 401(k) withdrawals entirely, regardless of age, but taxes IRA withdrawals. New York excludes them if you are 59½ or older and your income is below a threshold (around $20,000 for single filers, though this changes yearly).
Colorado, Kansas, Louisiana, Massachusetts, Michigan, Missouri, Montana, Ohio, and Oklahoma also offer partial or full exclusions for retirement account withdrawals, usually tied to age 59½ or 60. The income limits and exact rules differ in each state. If you live in one of these states, contact your state tax authority or a tax professional to learn whether your withdrawals may have access to for a break.
States with no special break for 401(k) withdrawals
The remaining 29 states tax 401(k) withdrawals as ordinary income with no special exemption based on age or retirement status. In these states, a $50,000 withdrawal is taxed the same way as $50,000 in wages or salary.
These states are: Alabama, Arizona, Arkansas, California, Connecticut, Delaware, Georgia, Hawaii, Idaho, Indiana, Iowa, Kentucky, Maine, Maryland, Minnesota, Mississippi (for those under 59½), Nebraska, New Hampshire, New Jersey, New Mexico, North Carolina, Oregon, Rhode Island, South Carolina, Vermont, Virginia, Washington, West Virginia, and Wisconsin.
If you live in one of these states and are planning large 401(k) withdrawals, consider spreading them across multiple years to stay in a lower tax bracket, or consult a tax professional about strategies to reduce your state tax burden.
Federal tax still applies everywhere
Even in the seven no-income-tax states, the federal government taxes your 401(k) withdrawal. The IRS treats it as ordinary income and applies federal tax brackets, which range from 10% to 37% depending on your total income and filing status.
You also may owe the 3.8% Net Investment Income Tax (NIIT) if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). Some 401(k) withdrawals can trigger this tax, though the rules are complex.
Additionally, if you withdraw money before age 59½, the IRS usually charges a 10% early withdrawal penalty on top of income tax, unless you may have access to for an exception. This penalty applies in every state, including the no-tax states.
Roth conversions and state tax
If you convert a traditional 401(k) or IRA to a Roth account, the converted amount is taxed as ordinary income in your state of residence at the time of conversion. In the seven no-tax states, you owe no state tax on the conversion. In other states, you owe state income tax on the full amount converted.
This is one reason some people do Roth conversions while living in a no-tax state — it reduces the total tax cost. However, the federal tax bill remains the same regardless of where you live, so the state tax savings may be smaller than the federal cost.
After the conversion, may have access to Roth withdrawals (made after age 59½ and at least five years after the first conversion) are tax-free in all states, including those that tax traditional 401(k) withdrawals.
Moving to a no-tax state: what to consider beyond taxes
Relocating to Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, or Wyoming can reduce your state tax burden, but taxes are only one part of the decision. Cost of living, healthcare access, climate, proximity to family, and housing costs all matter.
Some no-tax states have high property taxes or sales taxes that offset the income tax savings. Others have lower overall costs of living. Research the specific state and city where you are considering moving, not just the tax rate.
Also consider the timing. If you are still working, moving before retirement may not save much if you are earning W-2 income. The biggest savings usually come after you retire and start living primarily on 401(k) withdrawals and Social Security.
Frequently Asked Questions
Do I have to pay federal tax on 401(k) withdrawals in no-income-tax states?
Yes. Federal income tax applies everywhere in the United States. The seven no-tax states only eliminate state income tax. You still owe the IRS federal tax on your withdrawal, calculated using federal tax brackets.
If I move to Florida after I retire, do I owe Florida tax on withdrawals I took before I moved?
No. Your state of residence at the time you withdraw the money determines the tax. If you withdrew money while living in New York, you owed New York tax then. Once you move to Florida, future withdrawals are tax-free at the state level, but past withdrawals are not retroactively affected.
Does my 401(k) custodian need to be in a no-tax state to avoid state tax?
No. The location of your 401(k) custodian or plan administrator does not matter. Only your state of residence matters. You can live in Texas and have your 401(k) with a custodian in New York, and you will still owe no Texas state tax.
What counts as establishing residency in a new state?
Residency rules vary by state, but generally you need to live there for most of the year, have a driver's license or ID from that state, register to vote there, and own or rent a home there. straightforward having a mailing address is not enough. Check your target state's tax authority website for specific requirements.
Can I claim residency in two states at once to reduce my 401(k) tax?
No. You can only be a resident of one state for tax purposes. If you split time between two states, the state where you spend more time or have your permanent home is your state of residence. Attempting to claim residency in multiple states can trigger an audit.