Does Your State Tax Withdrawals from Pre-Tax Retirement Accounts? – Part 2 – 07/01/25
Money Matters – Skloff Financial Group Question of the Month – July 1, 2025
By Aaron Skloff, AIF, CFA, MBA
Q: We read ‘Pre-tax Versus Roth Employer Contributions to Retirement Accounts – Which Is Better?’ Part 1 and Part 2 and ‘Does Your State Tax Pre-Tax Contributions to Retirement Accounts?’ Part 1 and Part 2. and ‘Does Your State Tax Withdrawals from Pre-Tax Retirement Accounts?’ Part 1. Are withdrawals from pre-tax retirement accounts taxed the same in all states?
The Problem – Assuming Federal Income Tax Rules and State Income Tax Rules Are the Same Can Be a Costly Mistake
Federal income tax rules can vary greatly from state income tax rules. Without proper planning, you may pay unnecessary income taxes.
The Solution – Proper Planning Can Avoid Unnecessary Sate Income Taxes Today and in the Future
Pre-tax contributions to retirement accounts allow you to defer federal income taxes. With proper planning you can generate legal tax arbitrage of federal and state income taxes.
Have Your 401(k), 403(b) or 457(b) Account Professionally Managed
States with No State Income Tax. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. See the green colored states on the table below.
States with No State Income Tax on Retirement Account Withdrawals. Illinois, Iowa, Mississippi and Pennsylvania. See the blue colored states on the table below.
States that Tax Retirement Account Withdrawals. Arizona, District of Columbia, Hawaii, Idaho, Kansas, Minnesota, Nebraska. North Carolina, North Dakota, Oregon, Vermont and Virginia. See the red colored states on the table below.
States that Provide a Tax Deduction or Exclusion or Exemption on Retirement Account Withdrawals. Alabama, Arkansas, Colorado, Connecticut, Delaware, Georgia, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, New Jersey, New Mexico, New York, Ohio, Oklahoma, Rhode Island, South Carolina, Utah, West Virginia and Wisconsin. See the yellow colored states on the table below.
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Action Steps
Work closely with your Registered Investment Adviser (RIA) to optimize your taxes, and pay the lowest tax rates in the current tax year and future tax years.
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Master of Business Administration (MBA) is CEO of Skloff Financial Group, a Registered Investment Advisory firm specializing in financial planning, investment management and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.
Have Your 401(k), 403(b) or 457(b) Account Professionally Managed
