Most retirees assume their 401(k) withdrawals are taxed only by the federal government. They are wrong. Depending on where you live, your state can take an additional 5% to 13.3% of every dollar you pull from your retirement account.
The States That Will Tax Your Withdrawals
Thirty-three states plus the District of Columbia tax 401(k) distributions as ordinary income. That means every withdrawal you take gets added to your other income and taxed at your state's marginal rate. The worst offenders are California (up to 13.3%), New Jersey (up to 10.75%), Oregon (up to 9.9%), and Minnesota (up to 9.85%).
A retiree pulling $80,000 per year from a 401(k) in California faces up to $6,840 in state income tax on those withdrawals alone, before counting Social Security, pension income, or any part-time work. That same withdrawal in Florida costs zero dollars in state income tax.
Some states soften the blow with exemptions. Georgia exempts the first $65,000 of retirement income per person for taxpayers 65 and older. South Carolina exempts up to $15,000 of retirement income. These partial exemptions matter, but they do not make a high-rate state competitive with a zero-income-tax state.
The States Where Your 401(k) Is Completely Safe
Nine states have no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in any of these states, your 401(k) withdrawals face zero state taxation, period.
Beyond the no-income-tax states, several others specifically exempt retirement account distributions. Illinois taxes wages but fully exempts all retirement income, including 401(k) and IRA withdrawals, for any age. Iowa completed its retirement income exemption in 2023, so residents 55 and older pay no state income tax on 401(k) distributions. Mississippi and Pennsylvania also fully exempt retirement income, though each has specific eligibility rules around age and account type.
That puts the total count of states where 401(k) withdrawals face no state income tax at roughly 13, depending on your age and income level. See our full breakdown in Best States for Retirees to Avoid Taxes.
The $6,000 Senior Tax Break Most People Miss
The federal tax code includes an additional standard deduction for taxpayers 65 and older. For 2026, that amount is $2,000 for married filers and $1,600 for single filers added on top of the base standard deduction. This is separate from the figure often referenced as a "$6,000 senior deduction," which comes from proposed or state-level provisions that vary by jurisdiction.
Several states mirror or exceed the federal senior deduction. Georgia's $65,000 retirement income exclusion per person is the most generous broad-based example for couples. Colorado allows taxpayers 65 and older to deduct up to $24,000 of pension and retirement income. These state-level breaks can dramatically change your effective tax rate even in a state that technically taxes retirement income.
The catch: most of these exemptions phase out at higher income levels. A retiree with $150,000 in annual 401(k) withdrawals will lose eligibility for exemptions that a retiree pulling $60,000 qualifies for. Run your specific numbers before you move. Our state tax calculator lets you input your exact income and see what you would owe in any state.
What This Means If You Have a Significant Balance
About 1.4% of 401(k) participants had balances of $1 million or more as of late 2025, according to Fidelity data. That number is relevant because high-balance retirees face required minimum distributions that can push annual income well above the thresholds for state-level exemptions.
A retiree with $1.2 million in a 401(k) at age 73 faces an RMD of approximately $46,000 that year under current IRS tables. Add Social Security and any other income, and you may be looking at $90,000 to $120,000 in combined annual income. At that level, California takes roughly $8,000 to $12,000 in state taxes on your retirement withdrawals alone.
State income tax is not the only cost to consider. Property taxes, sales taxes, and estate taxes all affect the real cost of retirement in a given state. For the full picture on how states treat inherited wealth, see Estate Tax by State: Where Your Heirs Pay Most. And if you want to understand how Social Security taxation interacts with your 401(k) income at the state level, States That Don't Tax Social Security breaks that down separately.
Key Takeaways
- Thirteen states impose zero state income tax on 401(k) withdrawals, including Florida, Texas, Illinois, Iowa (age 55+), and Mississippi.
- California's top rate of 13.3% can cost a retiree withdrawing $80,000 annually up to $6,840 in state tax on those withdrawals alone.
- State-level retirement exemptions, like Georgia's $65,000 exclusion per person, can eliminate or reduce the tax burden even in states that technically tax income.
Sources
- Live or Die Here state tax calculator
- Live or Die Here, California: taxes, laws and costs
- Live or Die Here, Florida: taxes, laws and costs
- Live or Die Here, Georgia: taxes, laws and costs
- Live or Die Here, Illinois: taxes, laws and costs
Where to confirm these figures
These are the official and primary publishers for the topics in this guide. Check a figure against them before you act on it; laws and rates change, and their current page wins over ours.