Which States Don’t Tax 401k Withdrawals? 13 States List Full Vs Partial Exempt
Where you live can affect whether your 401(k) withdrawals are subject to state income tax.
State tax treatment varies, with some states exempting retirement account distributions and others taxing them as ordinary income.
It can also influence retirement planning, especially for people comparing where to retire or deciding when to begin taking withdrawals.
Federal Taxation of 401(k) Withdrawals
1. Ordinary Income Tax
All taxable distributions from traditional 401(k) plans are included in gross income and taxed at ordinary federal rates.
But if the distribution is rolled over directly into another qualified account, whether it is an IRA or 401(k), within 60 days, distributions of contributions and earnings are tax‑free if qualified.
2. Early Withdrawal Penalty
If you take a distribution before age 59½, a 10% additional tax generally applies to the amount received.
Exceptions to the 10% penalty include
- Disability
- Substantially equal periodic payments
- Separation from service (age 55+)
- Qualified domestic relations orders, and
- Other hardships
3. Required Minimum Distributions (RMDs)
After you reach the age of 73, your 401(k) plans must take annual RMDs by April 1 of the year after turning 73.
Each RMD is taxed as ordinary income.
In case you miss an RMD, it will trigger an IRS excise tax on the undistributed amount.
4. Roth vs. Traditional 401(k)
Traditional 401(k) contributions are pre-tax, and distributions are taxed.
Roth 401(k) contributions are post-tax; qualified distributions of contributions and earnings are entirely tax-free.
| Feature | Traditional 401(k) | Roth 401(k) |
|---|---|---|
| Contributions | Pre-tax dollars | After-tax dollars |
| Tax break today | Yes | No |
| Investment growth | Tax-deferred | Tax-free* |
| Retirement withdrawals | Taxed as ordinary income | Tax-free* |
| Best if... | You expect a lower tax rate in retirement | You expect the same or higher tax rate in retirement |
5. Tax Withholding
For any taxable 401(k) distribution that is eligible for rollover but paid out in cash, federal law imposes a mandatory 20% withholding.
You can avoid withholding by choosing a direct rollover to another plan.
The withheld 20% is a prepayment of tax; any excess tax will be reconciled on your return.
No withholding is required on direct rollovers or Roth rollovers.
9 States with No Income Tax (No 401(k) Tax)
| State | Income Tax | 401(k) Tax Treatment |
|---|---|---|
| Alaska | No individual income tax | Not taxed |
| Florida | No personal income tax | Not taxed |
| Nevada | No personal income tax | Not taxed |
| New Hampshire | No personal income tax (since 2025) | Not taxed |
| South Dakota | No personal income tax | Not taxed |
| Tennessee | No personal income tax | Not taxed |
| Texas | No personal income tax | Not taxed |
| Washington | No personal income tax* | Not taxed |
| Wyoming | No personal income tax | Not taxed |
No state tax is owed on any retirement distribution, including 401(k) withdrawals.
Since there is no state income tax at all, 401(k) income is inherently exempt.
States Fully Exempting 401(k) Distributions
A couple of states do tax income generally, but they specifically exempts 401(k) withdrawals.
| State | State Income Tax | 401(k) Distributions |
|---|---|---|
| Pennsylvania | Yes | Not taxed |
| Mississippi | Yes | Not taxed |
| Michigan | Yes | Generally not taxed (2026+) |
States with Partial 401(k) Taxation
Many states partially tax 401(k) distributions by offering exemptions, deductions, or credits up to certain limits.
These typically apply only to taxpayers above a threshold age or to specific income caps.
| State | 401(k) Tax Status | Maximum Exemption |
|---|---|---|
| Alabama | Partial exemption | $7,500 (age 65+) |
| Connecticut | Partial exemption | $10,000 (age 65+) |
| Delaware | Partial exemption | $12,500 (age 60+) |
| Georgia | Partial exemption | $65,000 (age 65+) |
| Indiana | Partial exemption | $1,250 single / $2,500 joint |
| Kansas | Partial exemption | $75,000 single / $100,000 joint (age 65+) |
| Kentucky | Partial exemption | $31,110 (age 59½+) |
| Louisiana | Partial exemption | $6,000 (age 62+) |
| Missouri | Partial exemption | $6,000 single / $12,000 joint |
| Nebraska | Partial exemption | $4,000 per taxpayer |
| New Jersey | Partial exemption | Up to $100,000 (age 65+) |
| New York | Partial exemption | $20,000 (age 59½+) |
| Ohio | Partial exemption | $2,500 (age 65+) |
| South Carolina | Partial exemption | $10,000 retirement deduction (age 65+) |
| Vermont | Partial exemption | Income-based exclusion |
| Virginia | Partial exemption | $12,000 (age 65+) |
| West Virginia | Partial exemption | $6,000 single / $12,000 joint |
| Wisconsin | Partial exemption | Up to statutory limits |
States Fully Taxing 401(k) Distributions
The remaining income-tax states tax 401(k) withdrawals fully as ordinary income with no additional retirement exemption.
| State | Income Tax | 401(k) Tax Treatment |
|---|---|---|
| California | Yes | Fully taxed as ordinary income |
| Hawaii | Yes | Fully taxed as ordinary income (for 401(k)/IRA distributions) |
| Idaho | Yes | Fully taxed as ordinary income |
| Maine | Yes | Fully taxed as ordinary income |
| Maryland | Yes | Fully taxed as ordinary income |
| Massachusetts | Yes | Fully taxed as ordinary income |
| Minnesota | Yes | Fully taxed as ordinary income |
| Montana | Yes | Fully taxed as ordinary income |
| New Mexico | Yes | Fully taxed as ordinary income |
| North Carolina | Yes | Fully taxed as ordinary income |
| North Dakota | Yes | Fully taxed as ordinary income |
| Oregon | Yes | Fully taxed as ordinary income |
| Rhode Island | Yes | Fully taxed as ordinary income |
| Utah | Yes | Fully taxed as ordinary income |
Please consult your state’s tax code or Department guidance for details, as tax codes change from time to time.
Federal vs. State Tax Comparison
Traditional 401(k) withdrawals are generally taxable at the federal level, while state treatment varies based on each state's income tax rules.
| Tax Level | Treatment of Traditional 401(k) Withdrawals |
|---|---|
| Federal Tax | Generally taxed as ordinary income |
| State Tax | Depends on state of residence |
| State With No Personal Income Tax | No state tax on 401(k) withdrawals |
| State With Full Retirement Exemption | No state tax on qualifying 401(k) withdrawals |
| State With Partial Exemption | Taxed after allowed deductions/exclusions |
| State Without Retirement Exemption | Fully taxed as ordinary income |
401k(k) Taxation States FAQs
No. Qualified Roth 401(k) withdrawals are tax-free if you meet age and 5-year holding requirements. Non-qualified withdrawals may be taxed or penalized.
Eligible rollover distributions paid in cash are generally subject to 20% federal withholding. A direct rollover avoids mandatory withholding.
Yes. Early withdrawals are generally subject to a 10% federal penalty unless an exception applies.
It depends on state tax rules. Your state of residence at the time of withdrawal may determine whether the distribution is taxable.
Yes, but federal deductions for state and local taxes are limited. The current SALT deduction cap is $10,000 ($5,000 if married filing separately).
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