From 24/7 Wall St. · Jake FitzGerald · · 2m
13 states where $1M 401(k) withdrawals owe zero tax
Nine states have no income tax at all. Four more tax wages but fully exempt retirement distributions. The difference can save you six figures.
In brief
Nine states have no income tax at all. Four more tax wages but fully exempt retirement distributions. The difference can save you six figures. Your state of residence when you withdraw from a 401(k) can swing your tax bill by over $100,000, and some states have retirement exemptions most people never check. Originally…
One million dollar difference
Pull $1 million from a traditional 401(k) in California and owe roughly $130,000 in state tax. Do it in 13 other states and your state tax bill is zero.
“Pull $1 million from a traditional 401(k) in California and the state alone can bill you roughly $130,000.”
Nine states tax nothing
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no broad income tax. A 401(k) withdrawal is treated like any other income: not taxed at all.
New Hampshire phased out old tax
New Hampshire used to tax interest and dividends separately. That tax is now phased out, so 2026 IRA or 401(k) distributions owe the state nothing.
Washington has a capital gains catch
Washington taxes long-term capital gains at 7% but not wages or retirement withdrawals. A 401(k) draw counts as ordinary income, so it clears the state. Selling appreciated stock there does not.
Illinois exempts all retirement income
Illinois has a flat 4.95% income tax but exempts distributions from qualified employer plans, IRAs, government pensions, and Social Security. A $1 million 401(k) withdrawal owes the state nothing.
Mississippi lowest cost of living
Mississippi exempts qualified retirement income including 401(k), IRA, and pension distributions once you reach the plan's retirement age. The state has the lowest cost-of-living index in the country at 86.953.
Pennsylvania exempts at retirement age
Pennsylvania doesn't tax distributions from employer retirement plans, 401(k), 403(b), or IRA once you hit the plan's normal retirement age or separate from service after 59 and a half.
Iowa exempts for age 55 and up
A 2022 law took effect in 2023 fully exempting retirement income for taxpayers 55 and older, disabled, or surviving spouses. A 60-year-old owes tax on paychecks but not on 401(k) rollovers.
Watch for local wage taxes
Pennsylvania's Earned Income Tax and Philadelphia wage tax hit wages, not 401(k) draws. Ohio and Kentucky have heavy local rates that catch newcomers. Confirm your specific municipality before moving.
Residency requires real commitment
High-tax states audit departing residents aggressively. Sell the house, change your driver's license, register to vote, move your doctors, and be gone more than 183 days to establish residency.
“Sell the house, change the driver's license, register to vote, move the doctors, and be gone more than 183 days.”
The essence
Your state of residence when you withdraw from a 401(k) can swing your tax bill by over $100,000, and some states have retirement exemptions most people never check.
