State Taxes on IRA Withdraws Differ by State

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Retirement income and IRA withdrawals sometimes receive different tax treatment in different states. These differences in state tax laws present opportunities for you to manage your tax bill and cash flow more efficiently.

Here are a few of the differences among state IRA tax laws below. When considering a move to another state, contact a CPA in that state and ask about all of the taxes that affect you as a retiree and find out how they are handled:

  • general income tax
  • sales tax
  • property tax
  • distributions from retirement accounts
  • tax on social security income
  • property tax
  • personal property tax
  • inheritance tax

States Where All IRA Income Is Tax-Free

In Florida, Texas, Nevada, and other states (a total of nine states) where there are no state income taxes, residents can keep a greater share of their IRA distributions, which are counted as income. Therefore, if you are thinking about relocating to the Sunshine State from a state such as New York, which assesses income taxes on IRA withdrawals and other retirement income, consider holding off on tapping your IRA until you move.   That way, you can avoid any state income IRA taxes on the distributions in New York.

States Where IRA Withdrawals Are Tax-Free

Certain states ( New Jersey, for example) don’t allow taxpayers to deduct IRA contributions from their taxable income on their state tax return.   But later on when those contributions come out of the IRA, residents of these states typically don’t have to worry about paying IRA taxes on the withdrawals.

Other states have different rules.  Oklahoma for example will not tax the first $10,000 (per person) that comes out of an IRA or pension. Wyoming does not tax such withdrawals at all. New Hampshire is another state which does not tax such retirement income.

States That Exclude Some Retirement Income from Taxes

Several states allow residents of a certain age (typically age 65 or older) to exclude a portion of their retirement income from state income taxes. But state tax laws may differ on whether IRA distributions can be counted as retirement income. A resident of Kentucky, for example, can include IRA withdrawals within the $40,200 of annual retirement income that is exempt from state income tax. And in New York, up to $20,000 of qualified private pensions for those 59½ and older is exempt. While in another state, only part of the IRA money may be exempt from state income taxes, even though other forms of retirement income are.

Some states have rules that are not straight forward such as Georgia:

Taxpayers who are 62 or older or totally disabled regardless of their age, may be eligible for a retirement-income preferential treatment on their Georgia state income tax. Retirement income includes income from pensions and annuities, interest income, dividend income, net income from rental property, capital-gains income and income from royalties. For married couples filing joint returns with both members receiving retirement income, the maximum exemption from state income tax for the year may be up to twice the individual exclusion amount. Retirement income exceeding the maximum adjustable amount is taxed at the normal rate. The retirement-income exclusion for 2012 is $35,000 if ages 62 to 64, or younger and permanently disabled. If 65 or older, the amount is $65,000.

13 thoughts on “State Taxes on IRA Withdraws Differ by State

  1. scott says:

    If I withdraw $150,000 from my IRA in New York state,(60 years old), do I have to pay federal and state tax?If so, how much would the taxes be on income of approx. $120,000. Thank you

  2. bobrichards says:

    the answer is yes, you will need to pay federal and state tax.
    There is no way to give you an exact answer (I would need to see the entire tax return) but the tax will be about 25% OF THE WITHDRAWAL AMOUNT, about $38,000 on a withdrawal of $150,000.

  3. Ed Loftus says:

    Is the withdrawal from an IRA taxable on my New Jersey resident tax return?

    Is this same IRA withdrawal taxable on my Connecticut non-resident tax return?

    Thanks, EdL

  4. bobrichards says:

    you need to look these things up on your own. Each of the 50 states is different.

  5. Mary says:

    My husband is 66 and wants to withdraw the money in his ING IRA account. Withdrawal form asks how much state (north Carolina) tax we want withheld. I have tried to find the answer online, but it looks like you need a degree in acctg. to understand it. FYI -- our combined annual income (annuitys and social security) is approximately 105,000 net per year. Thank you!!!

  6. bobrichards says:

    you will be safe to use 7% - see the tax table here http://www.dor.state.nc.us/taxes/individual/rates.html

  7. Floyd Martin says:

    I'm trying to determine the percentage of state taxes to withhold on an early IRA withdrawal I live in WV.

  8. bobrichards says:

    these are the state income tax rates so if you have 6.5% withheld, you cannot be wring and will get back excess when you file your return
    3 percent on the first $10,000 of taxable income.
    4 percent on taxable income between $10,001 and $25,000.
    4.5 percent on taxable income between $25,001 and $40,000.
    6 percent on taxable income between $40,001 and $60,000.
    6.5 percent on taxable income of $60,001 and above.

    Read more: http://www.bankrate.com/finance/taxes/state-taxes-west-virginia.aspx#ixzz2LP7syOmm
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  9. Geraldine Farmer says:

    I live in New York and want to take a withdrawal from my IRA. When I file my taxes, would I be responsible for paying state tax?

  10. bobrichards says:

    prabably, you need to look up NY sate tax rules for IRAs

  11. Ken Partacz says:

    In the state of GA does withdrawals from an IRA qualify for no state income taxes for a 65 year old resident up to $65,000 in 2012. Thank you.

  12. K Gollnick says:

    My husband built his 401(k) funds while working for an employer in Washington state (16 years). Then we moved to Iowa where he worked for another 12 years before getting a job back on the west coast, this time in Oregon. That company fell apart unfortunately, and he got laid off so returned to Iowa. We made two early withdrawals from his pension plan, but learned from an Oregon auditor that we did not have to report it on our Oregon tax return as the monies had NOT been earned in oregon.

    Now we live in Kansas and I'm working on our 2014 tax return - and we took one more withdrawal from his pension plan last year. He did not earn those monies while in Kansas, although he worked last year in Kansas. Does Kansas tax all pension withdrawals whether the money was earned there or not? I cannot find any information on this specific question, and am aware that each state is different. Oregon does NOT require reporting early pension withdrawals for taxes if those monies in that pension were earned with an employer in another state outside of Oregon; my hope is that Kansas is the same.

    Can you provide help or direct me to where I might find the answer?

    Thank you in advance for any assistance you can provide!

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