1 Milyon $ 'lık 401(k) Para Çekmenin Devlet Vergisinde 0 $ Borçlu Olduğu 13 Eyalet. Dokuzunun Gelir Vergisi Yok ve Illinois, Mississippi, Pennsylvania ve Iowa Muaf Emeklilik Geliri Düpedüz

The 13 States Where a $1 Million 401(k) Withdrawal Owes $0 in State Tax. Nine Have No Income Tax, and Illinois, Mississippi, Pennsylvania, and Iowa Exempt Retirement Income Outright

Jake FitzGerald

Sat, September 19, 2026 at 2:31 PM GMT+3 6 min read

Quick Read

• A $1M traditional 401(k) withdrawal triggers roughly $130,000 in California state tax but $0 in 13 states.

• Illinois, Mississippi, Pennsylvania, and Iowa levy income tax but fully exempt qualified retirement distributions for eligible retirees.

• Relocating requires passing a genuine residency test, including 183 or more days in the new state, a new license, and updated voter registration, because high-tax states aggressively audit departing residents.

• Two retirees, same $1 million, same 4% rule, buy one finished with $1.4 million, the other hit $0 in 12 years. Our free reader guide explains the flaw that separated them, and the income-first method built to avoid it.

Pull $1 million from a traditional 401(k) in California and the state alone can bill you roughly $130,000. Do the same withdrawal in 13 other states and the state line on your return reads zero.

Nine states levy no broad income tax at all. Four more tax wages but exempt qualified retirement distributions outright. The catch: local wage taxes, a Washington capital gains tax, and each state's Social Security rules are separate questions.

Nine States That Don't Tax Any Ordinary Income

These states have no broad individual income tax, so a lump-sum 401(k) distribution is treated the same as a paycheck would be: not at all.

• Alaska

• Florida

• Nevada

• New Hampshire

• South Dakota

• Tennessee

• Texas

• Washington

• Wyoming

Two deserve asterisks. New Hampshire used to tax interest and dividends under a separate statute; that tax has been phased out, so a 2026 IRA or 401(k) distribution owes New Hampshire nothing. Washington has no income tax on wages or retirement withdrawals but does impose a 7% state tax on long-term capital gains above an annually indexed threshold. A traditional 401(k) draw is taxed federally as ordinary income, not capital gain, so it clears Washington too. Sell appreciated stock in a taxable brokerage account there and the answer changes.

The 4% Rule is Broken, Built On A World That No Longer Exists

Every retiree knows about the 4% rule, but it frames retirement as a slow liquidation and still causes retirees with seven-figure accounts to agonize over a dinner out.

There's a different way to run the math that makes more sense today. Build an income floor — dividends, interest, and Social Security that cover your essential bills every month — and you never have to sell shares into a down market just to pay them.

Our free reader guide, The 4% Rule Is Broken, walks through it in about 15 minutes. Access the report here.

Four States That Tax Wages but Exempt Retirement Income

These four run full income tax systems and still send retirees home with a $0 line on qualified plan distributions. The scope of each carve-out is different, and that matters.

Illinois. Ranks 13th on individual income tax in the 2025 Tax Foundation index despite a flat 4.95% rate, largely because it exempts distributions from qualified employer plans, IRAs, government pensions, and Social Security. A $1 million 401(k) withdrawal by an Illinois resident owes the state nothing.

Mississippi. Exempts qualified retirement income, including 401(k), IRA, and pension distributions once the taxpayer reaches the plan's retirement age. The state's flat rate is winding down toward 4%, but for retirees it's already effectively zero on plan money. Mississippi carries the lowest cost-of-living index in the country at 86.953.

Pennsylvania. Doesn't tax distributions from an employer retirement plan, 401(k), 403(b), or IRA once you hit the plan's normal retirement age or separate from service after 59½. Social Security is also exempt. The wrinkle: Pennsylvania has heavy local wage taxes, though most municipalities do not reach retirement distributions.

Iowa. A 2022 law took effect in 2023 fully exempting retirement income (pensions, 401(k)s, IRAs, deferred comp) for taxpayers 55 and older, disabled, or surviving spouses. Iowa still taxes wages and interest, so a working 60-year-old owes on the paycheck but not on the rollover draw.

Worked Example: $1 Million Draw, Same Federal Bill, Different State Answer

Assume a married couple filing jointly, 66 years old, taking a single $1,000,000 traditional 401(k) distribution in 2026 with no other income. Federal ordinary income tax lands in the top brackets regardless of state. State side:

• California, top rate roughly 13.3%: about $130,000

• New York, top rate roughly 10.9% with a limited $20,000 pension exclusion: about $105,000

• Any of the 13 states above: $0

Multiply that across a Roth conversion ladder or a full account drawdown and the state-tax difference funds years of expenses. Average annual household spending was $78,535 in 2024.

Gotchas Before You Rent the U-Haul

Social Security taxation is a separate rule. All 13 states exempt Social Security federally taxable benefits, but confirm on the state's Department of Revenue page for the year you'll move.

Local income taxes still apply in a few places. Pennsylvania's Earned Income Tax and Philadelphia wage tax hit wages, not 401(k) draws, but part-time work in retirement is exposed. Ohio and Kentucky (not on this list) have heavy local rates that catch newcomers.

Investment income is the argued detail. Washington's capital gains tax is the main one. New Hampshire's old interest and dividends tax is gone.

Residency is a fact test. High-tax states audit departing residents aggressively. Sell the house, change the driver's license, register to vote, move the doctors, and be gone more than 183 days.

Draining a seven-figure retirement account across state lines is the kind of math worth running with a fiduciary advisor or CPA before the wire hits. The state line is only half of it; the federal bill on a big pre-tax balance is its own problem, and we walked through how to shrink it years ahead of the first required withdrawal in a free guide here.

This article is for informational purposes only and is not tax, legal, or investment advice. Consult a qualified tax professional about your specific situation.

Before Your Next Withdrawal, Run One Number ( It's Not The 4% Rule Everyone Knows)

Take your essential monthly expenses and subtract your guaranteed income — Social Security, plus any pension. What's left is your income gap, and how you close it determines whether retirement runs on share sales or on a paycheck your portfolio writes you every month. Our free reader guide, The 4% Rule Is Broken, shows exactly how to close that gap with portfolio income: a worked example (one retiree needed about $480,000 in income-producing assets to cover his essentials for good), an eight-point conversion checklist, and the 20-year numbers comparing dividends to withdrawals. It's free and takes about 15 minutes to read. Get the guide here before you take your next withdrawal.

Contact editorial@247wallst.com for any questions or corrections.