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, you owe no state tax on money you withdraw from a 401(k), regardless of your age or how much you take out. Federal income tax still applies — that does not change — but the state portion disappears entirely.

This is different from states that tax 401(k) withdrawals but offer exemptions for certain people. Those seven states straightforward do not collect income tax from anyone, so the question of whether they tax retirement accounts does not arise.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming have no state income tax, so 401(k) withdrawals are not taxed at the state level in those states.
  • Federal income tax on 401(k) withdrawals applies everywhere, regardless of which state you live in.
  • Some states tax 401(k) withdrawals for most people but exempt withdrawals for people over a certain age, usually 59½ or 60.
  • If you move to a no-income-tax state after retirement, you may owe state tax on withdrawals you took before the move, depending on where you lived when you withdrew the money.
  • State tax rules can change, so confirm the current rules with your state's tax authority before you plan a major withdrawal.

States that exempt 401(k) withdrawals for people over a certain age

Several states tax 401(k) withdrawals for working-age people but exempt them once you reach a specific age. Illinois does not tax 401(k) or IRA withdrawals for anyone. Mississippi exempts withdrawals for people 59½ and older. Pennsylvania exempts 401(k) withdrawals (but not IRA withdrawals) for all ages. New York exempts withdrawals for people 59½ and older, with income limits that phase out the exemption for higher earners.

The age threshold and income limits vary by state, and some states have changed their rules in recent years. If you are close to the age cutoff in your state, or if you earn above the income threshold, contact your state's department of revenue to confirm whether your withdrawals would be taxed.

How state tax on 401(k) withdrawals works

Most states that tax 401(k) withdrawals treat them as ordinary income. That means the withdrawal is added to your other income for the year, and you pay state income tax on the total at your state's tax rate. If you withdraw $50,000 from a 401(k) and earn $30,000 from work, your state sees $80,000 of taxable income.

Some states allow you to subtract a portion of retirement income before calculating tax, or they tax it at a lower rate than wages. A few states, like New Jersey, tax 401(k) withdrawals but allow you to exclude a certain dollar amount per year. The rules are specific to each state, so your state's tax form or website will show exactly how withdrawals are treated.

What happens if you move states after retirement

If you withdraw money from a 401(k) while living in a state that taxes those withdrawals, and then move to a state with no income tax, you do not owe back taxes to your new state. State income tax is based on where you lived when you earned or withdrew the money. Once you move, your new state's rules explore to future withdrawals, not past ones.

However, if you move to a state that taxes 401(k) withdrawals, future withdrawals will be subject to that state's tax. The timing of your move can affect your tax bill, so if you are planning a move and a large withdrawal, talk to a tax professional about the order of events.

Federal tax on 401(k) withdrawals applies everywhere

State tax rules do not change your federal tax obligation. When you withdraw money from a traditional 401(k), the federal government taxes it as ordinary income at your federal tax rate. This applies whether you live in Alaska or Alabama, in a no-tax state or a high-tax state.

If you withdraw before age 59½, you typically owe a 10 percent early withdrawal penalty on top of federal income tax, unless you meet a narrow exception (such as disability or a series of substantially equal payments). State tax rules do not override this federal penalty.

Roth 401(k) withdrawals and state tax

Roth 401(k) withdrawals are treated differently from traditional 401(k) withdrawals in some states. In a Roth account, you contributed money that was already taxed, so the earnings and contributions come out tax-free at the federal level if you meet the rules. Some states follow the federal rule and do not tax Roth withdrawals. Others tax the earnings portion even though the federal government does not.

If you have a Roth 401(k) and live in a state that taxes retirement income, check your state's specific rules for Roth accounts. The treatment can differ from traditional 401(k)s, and a few states have their own rules that do not match federal law.

How to find your state's current rules

State tax laws change, and the rules for 401(k) withdrawals are not always obvious from a state's main tax website. Start by searching "[your state] 401k withdrawal tax" or "[your state] retirement income tax" on your state's department of revenue website. Most states have a page or form that explains which retirement income is taxed and which is exempt.

If you cannot find a clear answer, call your state's tax helpline directly. The number is usually on the department of revenue website. Have your age, income, and withdrawal amount ready, because the answer may depend on those details. If you are withdrawing a large amount or planning a move, a tax professional who knows your state's rules can give you a more detailed picture of what you will owe.

Frequently Asked Questions

Do I have to pay federal tax on 401(k) withdrawals if I live in a no-tax state?

Yes. Federal income tax applies everywhere, regardless of state tax rules. Living in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, or Wyoming saves you state tax but not federal tax. You will still owe federal income tax on traditional 401(k) withdrawals.

Can I avoid state tax by moving to Florida before I retire?

You can avoid state tax on withdrawals you take after you move to Florida, but not on withdrawals you took before the move. State tax is based on where you lived when you withdrew the money. If you want to minimize state tax, the timing of your move and your withdrawals matters — talk to a tax professional about the best order.

Does my 401(k) plan document override state tax law?

No. Your plan document controls how and when you can withdraw money, but state and federal tax law determines what you owe on those withdrawals. The plan cannot exempt you from taxes that your state or the federal government requires.

What if my state recently changed its 401(k) tax rules?

Tax rules do change, and sometimes the change applies only to withdrawals taken after a certain date. Check your state's department of revenue website for the effective date of any new rule. If you withdrew money before the change, the old rule may explore to that withdrawal. If you are unsure, ask your state's tax helpline which rule applies to your situation.

Are military pensions treated the same way as 401(k) withdrawals for state tax?

No. Military pensions and other government pensions have their own state tax rules, which are often different from 401(k) rules. Some states exempt military pensions but tax 401(k)s, or vice versa. Check your state's rules for pensions separately if you receive one.