State Income Tax on RMDs: Which States Tax Your Retirement Distributions?

Everyone knows RMDs are federally taxable — they're treated as ordinary income at rates up to 37%. But state income tax on your RMD is a separate question that varies enormously. A retiree taking $80,000/year in RMDs in Florida owes $0 to the state. The same retiree in California owes up to $6,000+ in state tax on that same distribution. Which bucket is your state?

Group 1 — No state income tax (9 states)

These states impose no personal income tax at all, so RMDs, Roth conversions, Social Security, and all other retirement income are completely exempt from state taxation.

Group 2 — State income tax, but retirement income fully exempt (5 states)

These states have a state income tax, but specifically exempt IRA distributions, 401(k) withdrawals, and other qualified retirement income from taxation.

Illinois (4.95% flat rate)

Illinois has one of the most retirement-friendly tax codes in the country despite its flat income tax rate. All retirement income — including IRA and 401(k) distributions, pensions, and Social Security — is fully exempt from Illinois income tax.² A retiree taking $120,000/year in RMDs owes $0 to Illinois.

Mississippi (graduated rates to 4.7%)

Mississippi exempts all qualified retirement income from state income tax, including distributions from IRAs, 401(k)s, 403(b)s, and defined benefit pensions. Social Security is also exempt.³

Pennsylvania (3.07% flat rate)

Pennsylvania does not tax distributions from IRAs, 401(k)s, or other qualified retirement plans after reaching retirement age. Social Security is also exempt. Note: PA did not allow a deduction for traditional IRA contributions, so if you contributed while a PA resident, the distributions of those after-tax contributions would not be double-taxed — effectively the entire distribution is still exempt in most cases.⁴

Iowa (graduated rates to 5.7%)

Iowa eliminated state income tax on retirement income including IRA and 401(k) distributions for taxpayers 55 and older beginning in tax year 2023. Social Security is also exempt.⁵

Michigan (graduated, phasing down)

Michigan has been phasing out state income tax on retirement income. As of 2026, most retirement income including pensions and distributions from IRAs and defined contribution plans is effectively exempt for those born before 1946 (fully) and substantially reduced for those born 1946-1952. Those born after 1952 receive a deduction equal to the maximum Social Security benefit.⁶

Group 3 — Partial exemptions (major states)

These states tax retirement income but offer meaningful deductions or exclusions based on age, income level, or account type. For retirees in these states, the strategy is to understand the cliff so you can manage income to stay under it.

New York

New York excludes up to $20,000 of qualifying pension and retirement income (including IRA and 401(k) distributions) for taxpayers age 59½ and older.⁷ Social Security is fully exempt. Income above the $20K exclusion is taxed at NY's graduated rates (4% to 10.9%). For a retiree taking $100,000 in RMDs, $20,000 is sheltered and $80,000 is taxable — at $80K in federal AGI plus NY rate, that's roughly $5,000-$7,000 in NY state tax. The $20K threshold has not been indexed to inflation since the 1980s — a real planning constraint.

New Jersey

New Jersey offers a retirement income exclusion of up to $75,000 per person ($150,000 married filing jointly) for taxpayers with total income under $150,000.⁸ Applies to pension, IRA, and 401(k) distributions. For retirees with modest RMDs who stay under the income threshold, NJ can be effectively tax-free for retirement income. Above the threshold, the exclusion phases out.

Georgia

Georgia allows a retirement income exclusion of $35,000 per person for those age 62–64, and $65,000 per person for those age 65 and older.⁹ For a married couple both 65+, up to $130,000 in retirement income can be excluded. Above the exclusion, income is taxed at Georgia's flat 5.39% rate (2026). Most retirees with moderate RMDs stay under the exclusion or close to it.

Colorado

Colorado allows taxpayers age 65 and older to deduct up to $24,000 of retirement income from their Colorado taxable income.¹⁰ Applies to IRA and 401(k) distributions, pensions, and Social Security. Colorado's flat income tax rate is 4.4% (2026). Most retirees with RMDs under ~$50K-$60K per year will owe little or no Colorado state tax after applying the deduction and standard deduction.

South Carolina

South Carolina allows a retirement income deduction of $15,000 per person for those age 65 and older, applicable to IRA and pension distributions. Below age 65, a $3,000 deduction applies. Rates range up to 6.2% (2026).

Group 4 — States that fully tax retirement income

In these states, RMDs are taxed like any other ordinary income. The federal-state combined marginal rate for a high-income retiree can be substantial.

Why state taxes change the Roth conversion math

When evaluating whether to do Roth conversions in the pre-RMD window, state taxes affect the calculation in two ways:

1. The conversion is taxable now. A $100,000 conversion in Minnesota costs $6,000–$9,850 in state tax (depending on bracket) on top of federal. The higher the state tax, the less attractive the conversion is at high income levels.
2. The future RMD is taxable later. If you're in a high-tax state now but plan to move before RMDs kick in, the conversion is worse. If you're planning to stay, avoiding future taxable RMDs has the same state-tax value as converting them avoids.

QCDs and state taxes

Qualified Charitable Distributions (QCDs) reduce your federal AGI — but their state tax treatment varies. In most states that tax retirement income, QCDs also reduce state taxable income because they reduce your federal AGI, which most states use as a starting point. In a few states with complex conformity rules, the interaction may differ. Verify with your advisor or state tax authority.

The planning implication: know your combined rate

When evaluating a Roth conversion, a QCD, or a distribution strategy, you need the combined federal + state marginal rate. A retiree in the 22% federal bracket in:

• Florida: 22% combined (state = 0)
• New York: ~28–30% combined (NY adds 5.5–6.85% on income above $20K)
• California: ~30–35% combined (CA adds 8–10.3% for moderate-to-high RMDs)
• Minnesota: ~29–31% combined (MN adds 6.8–7.85% for that bracket)

For a $2M+ account, the difference in lifetime taxes between a high-tax and low-tax state — assuming the same withdrawal schedule — is easily $100,000–$300,000. This is why state tax planning is not a footnote in retirement distribution planning. It's often one of the largest levers available.

Sources

1. Washington State DOR — Capital Gains Excise Tax. Applies to capital gains above $270,000 (2026); retirement account distributions are ordinary income, not subject to this tax.
2. Illinois Department of Revenue — Retirement Income Exemptions. All qualifying retirement income exempt from Illinois income tax.
3. Mississippi Department of Revenue — Individual Income Tax FAQs. Qualifying retirement income including IRA/401(k) distributions exempt.
4. Pennsylvania Department of Revenue — Pension and Retirement Income. IRA and qualified plan distributions exempt from PA income tax at retirement age.
5. Iowa Department of Revenue — Retirement Income Exclusion. Full exclusion for retirement income including IRAs/401(k)s for taxpayers age 55+, effective 2023.
6. Kiplinger — 2026 State Tax Changes. Michigan phase-out of retirement income tax, including qualified pension and IRA/DC plan distributions.
7. New York State Department of Taxation — Retirement Income. $20,000 pension and retirement income exclusion for taxpayers age 59½+.
8. New Jersey Division of Taxation — Retirement Income Exclusion. Exclusion up to $75,000 single / $150,000 MFJ for taxpayers with income under $150,000.
9. Georgia Department of Revenue — Retirement Income. $35,000 exclusion for 62–64; $65,000 for 65+.
10. Colorado Department of Revenue — Pension/Annuity Subtraction. $24,000 deduction for taxpayers 65+ on qualifying retirement income including IRAs.

State tax rates and exemptions verified as of April 2026. State tax law changes frequently — confirm your specific state's current rules with a tax professional or your state's department of revenue.