State Income Tax on IRA Withdrawals: 2026 State-by-State Guide

The federal tax on IRA withdrawals is straightforward: you pay ordinary income tax on the amount you take out. But state tax? That's a different story in every state. Thirteen states charge nothing on your IRA distributions. Four more fully exempt retirement income. At the other end, California taxes IRA withdrawals at up to 13.3% — meaning a $100,000 annual IRA withdrawal costs an extra $13,300 per year over what you'd pay in Florida. Over a 30-year retirement, that difference compounds into hundreds of thousands of dollars.

This guide covers every state's treatment of IRA withdrawals, the federal law that protects you when you move, and the planning strategies advisors use with clients holding $500K–$3M in rollover IRAs.

Tier 1: States with no income tax (9 states)

These nine states have no personal income tax at all. IRA withdrawals, pension income, Social Security, and investment gains are all free of state income tax regardless of amount or age.¹

Tier 2: States that fully exempt retirement income (4 states)

These states have a general income tax, but carve out retirement income — including IRA and 401(k) distributions — from taxation entirely.

Tier 3: Partial exemptions to know

Michigan (new exemption for 2026)

Under Public Act 4 of 2023, Michigan now exempts most retirement income — including IRA and 401(k) withdrawals — up to $67,610 for single filers and $135,220 for joint filers in the 2026 tax year. Amounts above these thresholds are taxed at Michigan's 4.25% flat rate. For a retiree withdrawing $80,000 from an IRA, only $12,390 ($80K minus $67,610) is subject to Michigan state tax — about $527 per year.³

New York

New York's top marginal rate is 10.9%. But taxpayers age 59½ or older receive a $20,000 annual exemption on pension and retirement income, including IRA and 401(k) distributions. Amounts above $20,000 are taxed at ordinary New York rates (4–10.9% depending on income level). New York City adds a local income tax of 3.078–3.876%.⁴

Proposed legislation (NY S2571A) would raise this exemption to $30,000 for the 2026 tax year, but as of May 2026 the existing $20,000 exemption remains current law. Verify with a tax advisor before planning around any increase.

Tier 4: States that fully tax IRA withdrawals

In most states, IRA withdrawals are treated as ordinary income — taxed at the state's standard rate brackets. The states with the highest rates where retirees are likely to be concentrated:

Note: Approximate state tax amounts depend on total taxable income, filing status, deductions, and whether the state has local income taxes. These are estimates for planning purposes — consult a tax advisor for precise figures.

The California situation: why it matters most

California has the highest top marginal income tax rate in the country at 13.3%, applied to income above $1,000,000 ($500K for single filers). For a retiree taking $150,000 per year from a traditional IRA in California — typical for someone who rolled over a $2M 401(k) — the annual state tax bill is roughly $11,000–$13,000 depending on other income and deductions. Over 25 years, that's $275,000–$325,000 in state tax on retirement income alone, not counting growth.

The critical planning point: California does not tax IRA distributions received by non-residents. Federal law (4 U.S.C. § 114) prohibits states from taxing pension, 401(k), or IRA distributions received by individuals who are not residents of that state — regardless of where the funds were earned or contributed. Once you establish legal domicile in Florida, Texas, or any other state, California has no authority to tax your IRA withdrawals.⁵

This is fundamentally different from earned income: a California-based business that generates W-2 income for non-residents can still be sourced to California. IRA distributions have no California source once you've moved.

Interactive state comparison calculator

Estimate your annual state tax on IRA withdrawals in your current state — and what you'd save by moving to a lower-tax state.

The relocation opportunity: when moving makes financial sense

For retirees with large rollover IRA balances — $750K and above — state relocation is one of the highest-ROI tax planning moves available. Consider a couple with a $2M IRA in California taking $120,000 per year in distributions:

• In California: Approximately $9,500–$12,000 per year in state income tax (depending on other income, deductions, and filing status)
• In Florida or Texas: $0 in state income tax on the same $120,000
• 20-year savings: $190,000–$240,000 in state tax avoidance — not counting the investment growth those saved taxes would generate if reinvested

For this to work, the move must be genuine. The IRS and state revenue departments look through cosmetic relocations. The key factors in establishing non-resident status for California (the most aggressive state):

1. Physically residing in the new state for more than 183 days per year
2. Establishing domicile — the new state becomes your true home and primary residence
3. Updating driver's license, vehicle registration, and voter registration to the new state
4. Opening financial accounts in the new state and updating financial advisors' records
5. Moving the location of primary medical care, religious affiliation, and club memberships
6. Either selling the California residence or converting it to a clearly secondary property (a vacation home you visit infrequently)

Federal Source Tax Law: what protects you when you move

Federal law (4 U.S.C. § 114) prohibits states from taxing retirement plan distributions received by non-residents. This applies to IRA distributions, 401(k) distributions, pensions, and annuity payments. Once you are not a California resident, California has no legal right to tax your IRA withdrawals — regardless of when the IRA was funded or whether the underlying investments generated income in California while you lived there.⁵

This protection does not extend to: W-2 wages or self-employment income earned in California, rental income from California property, or California-sourced business income. Only retirement plan distributions are protected. This is the key distinction between a retiree living on IRA withdrawals (protected) and someone receiving consulting income from California clients (still sourced to California).

When state taxes should influence rollover decisions

State tax treatment doesn't change whether to do a rollover — the mechanics are identical either way. But it does influence several planning decisions advisors work through with rollover IRA clients:

Roth conversion timing relative to relocation

If you plan to move from California to Florida at retirement, doing large Roth conversions before the move costs California income tax on those conversion amounts (up to 13.3%). Doing the same conversions after the move costs $0 in state tax. For a $200,000 Roth conversion, that's a $26,600 state tax savings just from sequencing the conversion around the relocation date.

This is one of the most concrete planning opportunities for high-balance rollover IRA owners — and it requires knowing your relocation timeline 2–3 years in advance to optimize the sequencing. See our Roth conversion bracket targeting guide for the federal tax mechanics.

Withdrawal rate planning by state

In a high-tax state, every $1 of IRA withdrawal costs not just federal income tax but also 5–13% in state tax. This affects the sequence in which you draw from different accounts. In California, it can make sense to prioritize withdrawals from Roth IRAs (not taxable at state or federal level) or taxable brokerage accounts (capital gains taxed at lower rates) before tapping pre-tax IRA funds — reducing the state tax bite during high-bracket years.

IRMAA and state tax stacking

Medicare's income-related monthly adjustment amount (IRMAA) adds surcharges to Part B and Part D premiums once modified AGI exceeds $106,000 (single) or $212,000 (joint) in 2026. In a high-tax state, a large IRA withdrawal can push you over an IRMAA tier, triggering both higher Medicare costs and a high state tax rate simultaneously. Managing the timing and size of annual withdrawals to stay below IRMAA cliff thresholds matters more in high-tax states because the combined federal + state + IRMAA effective rate on the last dollar can exceed 60%.