Pennsylvania Retirement Income Tax 2026: $0 on IRAs, RMDs, and 401(k)s — But Know the Inheritance Tax Trap

Pennsylvania levies a 3.07% flat income tax — one of the lowest flat rates in the country. But for retirees, that rate largely doesn't apply. Pennsylvania's Tax Reform Code of 1971 exempts required minimum distributions, traditional IRA withdrawals, 401(k) and 403(b) distributions, pension income, and Social Security from state taxation. A retired Pennsylvania resident taking $200,000 per year entirely from traditional IRA accounts pays $0 in Pennsylvania state income tax on those distributions. The same retiree in California pays $16,000–$18,600 in state income tax on the same money.

The catch that trips up PA estate plans: while Pennsylvania taxes nothing during your lifetime, it taxes your IRA when you die. Pennsylvania's inheritance tax applies to the fair market value of IRA accounts passing to adult children at 4.5% — with no exemption threshold and no reduction for the embedded federal income tax liability your heirs will owe on distributions.

How the exemption works

Pennsylvania computes personal income tax differently from federal. Pennsylvania's Tax Reform Code defines "compensation" narrowly — wages, salaries, and compensation for services — and specifically excludes qualifying retirement income from taxable compensation once the taxpayer has reached retirement age (59½, consistent with the federal penalty-free threshold).¹

The exemption applies broadly to:

• Traditional and Roth IRA distributions from accounts at any custodian
• 401(k), 403(b), SIMPLE, SEP, and 457(b) plan distributions
• Defined benefit pension payments from private-sector, public-sector, and government plans
• Social Security retirement benefits (separately exempt from federal preemption as well)
• Railroad Retirement benefits
• Annuity payments from qualified retirement plans

There is no dollar cap on the exemption. A retired Pennsylvania resident receiving $500,000 per year from a traditional IRA pays $0 in Pennsylvania state income tax on that income — the same as one receiving $50,000. This places Pennsylvania in a small group of income-tax states — alongside Illinois, Mississippi, and Iowa — that fully exempt retirement income without a dollar limit or income phaseout.

Age 59½ threshold: The exemption applies to distributions made after the federal penalty-free age. A 55-year-old taking early IRA distributions without a qualifying exception still owes Pennsylvania income tax at 3.07% on those distributions. A 72-year-old beginning RMDs owes nothing. For the audience of this site — RMD-age retirees typically 70 to 85 — the threshold is irrelevant.

The Roth conversion advantage in Pennsylvania

Pennsylvania's retirement income exemption extends to Roth conversions — the IRA distribution event that funds a Roth IRA. A 67-year-old Pennsylvania resident converting $150,000 from a traditional IRA to a Roth IRA pays federal income tax on the full $150,000 at their marginal rate (22%–24% for most retirees in that range) but owes $0 to Pennsylvania.

Neighboring New Jersey would add approximately $9,000–$10,000 in state income tax on the same conversion (once income exceeds NJ's retirement exclusion). California would add $14,000–$16,000. Even New York — which exempts only the first $20,000 per person of retirement income — would charge $8,000–$9,000 in state income tax on the same $150,000 conversion.

Pennsylvania's $0 state tax on Roth conversions is a meaningful planning advantage. The pre-RMD window (ages 62–72 for most of today's retirees) is when Roth conversions cost the least in federal tax — Pennsylvania residents pay only federal tax, making the after-tax cost of conversion comparatively lower than in any other major income-tax state.

What Pennsylvania does tax — the capital gains trap

For retirees with substantial taxable brokerage accounts, Pennsylvania has one significant departure from retirement-friendliness: capital gains are taxed as ordinary income at 3.07%, with no preferential long-term rate.¹

Federally, long-term capital gains are taxed at 0%, 15%, or 20% depending on income level. A retiree with a modest income can harvest $50,000 in long-term capital gains at a 0% federal rate. Pennsylvania taxes all $50,000 at 3.07% — costing $1,535 in state tax that federal law would have exempted.

For retirees whose strategy relies heavily on taxable account distributions (rather than IRA distributions), Pennsylvania's capital gains treatment is a relevant cost. For retirees living primarily off IRA/RMD income, it rarely matters — there's simply nothing to tax.

Pennsylvania retirement income tax comparison calculator

Pennsylvania charges $0 on IRA, RMD, and 401(k) income. California taxes the same distributions at rates up to 13.3% with no retirement income exclusion. Enter your annual retirement income below to see the state tax difference.

The Pennsylvania inheritance tax trap on IRA accounts

Here is the planning issue Pennsylvania retirees with large IRA balances need to understand: while Pennsylvania taxes no retirement income during your lifetime, it taxes IRA assets when those accounts pass to heirs at your death.

Pennsylvania's inheritance tax is assessed on the fair market value of the account at date of death — with no deduction for the embedded federal income tax liability your heirs will owe when they take distributions. The tax has no exemption threshold: the first dollar is taxed at the applicable rate.²

Source: Pennsylvania Department of Revenue, Inheritance Tax Act, 72 P.S. §9101 et seq. Rates unchanged for 2026.²

Why the $2 million IRA example matters

Consider a married Pennsylvania couple, both age 72, with $2 million in traditional IRAs. They plan to leave these accounts equally to their two adult children:

• Each child receives $1,000,000 of inherited IRA
• Pennsylvania inheritance tax: 4.5% × $1,000,000 = $45,000 per child ($90,000 total)
• Federal income tax: Each child owes income tax on every dollar distributed over 10 years (SECURE Act 10-year rule)³
• Combined federal + PA drag on this $2M: easily 35%–40%+ of the gross account value

The inheritance tax is due within 9 months of death — before most of the inherited IRA is distributed. Children may need to take early IRA distributions specifically to pay the inheritance tax bill, which then triggers federal income tax on those distributions, compounding the cost.

The early payment discount: Pennsylvania allows a 5% discount on inheritance tax paid within 3 months of death. On a $90,000 inheritance tax bill, that saves $4,500 — worth pursuing if the liquidity is available.

Pennsylvania inheritance tax calculator

Estimate the Pennsylvania inheritance tax on IRA and retirement account assets passing to different beneficiary classes at your death.

Planning strategies for Pennsylvania retirees with large IRA balances

1. Roth conversions — the best tool PA offers

Roth conversions reduce the traditional IRA balance (cutting future federal income tax for heirs) without triggering Pennsylvania income tax — and without increasing the PA inheritance tax base any more than leaving it in a traditional IRA. Both Roth and traditional IRA assets face the same 4.5% PA inheritance tax on account value at death.

But the heir's combined cost is dramatically lower for a Roth IRA. A child inheriting a $500,000 traditional IRA owes:

• PA inheritance tax: $22,500 (4.5%)
• Federal income tax on distributions: ~$100,000–$150,000 over 10 years (depending on heir's bracket)

A child inheriting $500,000 in a Roth IRA owes:

• PA inheritance tax: $22,500 (4.5%) — same
• Federal income tax on distributions: $0 (Roth distributions income-tax-free)

Converting $100,000–$200,000 per year from traditional to Roth in the pre-RMD window (ages 62–72) or post-RMD window eliminates decades of federal income tax on those balances — and Pennsylvania charges nothing for it. Use the Roth conversion sizing calculator to estimate how much to convert each year while staying within your preferred tax bracket and below IRMAA Medicare surcharge thresholds.

2. Qualified Charitable Distributions — reduce both taxes simultaneously

QCDs allow IRA owners age 70½ or older to donate up to $111,000 directly to charity from an IRA in 2026, excluding the amount from federal income entirely — not just deducting it. Each dollar given via QCD reduces the IRA balance by a dollar, which:

• Lowers federal AGI (unlike a standard charitable deduction), reducing SS provisional income and IRMAA exposure
• Reduces the IRA balance subject to PA inheritance tax at 4.5%

For charitably inclined Pennsylvania retirees, $111,000 in annual QCDs saves $4,995 in PA inheritance tax on top of the federal income tax savings. Over 10 years, that compounds meaningfully. Use the QCD calculator to see the combined federal + inheritance tax savings.

3. IRA-to-charity at death — name charity as partial IRA beneficiary

Because charities pay $0 Pennsylvania inheritance tax on inherited IRA assets, directing a portion of a large IRA to charity at death while leaving other (non-IRA) assets to children is an efficient PA estate strategy. Children inherit real estate, taxable brokerage accounts (which get a federal stepped-up cost basis), or life insurance — assets with a lower combined tax cost. The IRA goes to charity where it is fully exempt from both income and inheritance tax.

4. Surviving spouse as primary beneficiary

Assets passing to a surviving spouse are PA inheritance-tax-free. Naming your spouse as primary IRA beneficiary defers the 4.5% PA inheritance tax until the second death — potentially buying years of additional tax-free growth and Roth conversion opportunity. The surviving spouse can continue Roth conversions, QCDs, and IRMAA-aware planning to reduce the IRA balance before their own death. See the surviving spouse IRA guide and married couples RMD planning for full mechanics.

Pennsylvania Property Tax/Rent Rebate Program

For lower-income Pennsylvania seniors, the state offers direct relief on property taxes or rent through the Property Tax/Rent Rebate Program (PTRR):⁴

• Who qualifies: Pennsylvania residents age 65+; widows/widowers age 50+; permanently disabled age 18+
• Income limit (2026): $48,110 household income (only half of Social Security counts toward this limit)
• Maximum rebate: $1,000 per year
• Application deadline: December 31, 2026 (extended by the Shapiro administration)
• How to apply: myPATH portal at pa.gov/ptrr

Important note: while Pennsylvania income tax exempts IRA and RMD distributions, those distributions count toward the PTRR income limit. A retiree with $60,000 in annual RMDs who owes $0 in PA income tax still exceeds the $48,110 PTRR threshold and would not qualify for the rebate.

PA vs. comparable states — what to weigh

PA income tax exemption for retirement income verified via PA Department of Revenue guidance and Pennsylvania Tax Reform Code of 1971. PA inheritance tax rates verified via PA Department of Revenue Inheritance Tax page. Property tax rates per 2026 national survey estimates. NJ has no inheritance tax on transfers to lineal heirs (children, grandchildren) — NJ inheritance tax only applies to Class C (siblings) and Class D beneficiaries (others). Florida and New York have no state inheritance or transfer tax on inherited IRA accounts.

Related guides

• How every state treats RMD income — full comparison table
• All-50-states retirement income tax calculator (SS + RMD + pension + QCD)
• Moving states for retirement tax savings — domicile change guide
• Roth conversion sizing calculator — bracket-fill + IRMAA analysis
• IRA estate planning guide — no step-up, 10-year rule, IRA-to-charity strategy
• Trust as IRA beneficiary — PA compressed trust bracket + inheritance tax interaction
• QCD calculator — charitable giving from IRAs, IRMAA tier impact
• Married couples RMD planning — joint RMD + surviving spouse strategy
• Surviving spouse IRA options — spousal rollover, SECURE 2.0 §327 election
• Illinois retirement income tax — similar full-exemption structure, different estate trap ($4M IL estate tax vs. PA inheritance tax)
• New Jersey retirement income tax — the opposite of PA: income-limited exclusion, NJ inheritance tax on class C/D beneficiaries, Stay NJ credit