California Taxes on Pensions IRAs and 401ks – California taxes most retirement income as ordinary income, but with important nuances for pensions, traditional IRAs, Roth IRAs, and 401(k) plans. Unlike nine states with no income tax or others that exempt retirement distributions, California fully taxes withdrawals from traditional accounts for residents—often at high progressive rates—while exempting Social Security.
This guide uses official sources like the California Franchise Tax Board (FTB) Publication 1005 (Pension and Annuity Guidelines for 2025, which applies to current rules) and FTB guidelines to explain exactly how California taxes pensions, IRAs, and 401(k)s. Whether you’re retiring in California, moving there, or planning withdrawals, here’s what you need to know for tax year 2025 (filed in 2026) and beyond.
Do California Residents Pay State Taxes on Pension Income?
Yes, California taxes most pension income for residents at ordinary income tax rates. Private employer pensions, governmental pensions, and annuities are generally fully taxable unless you have after-tax contributions (basis) to recover.
- Taxable portion: Follows federal Form 1099-R rules. California conforms to federal tax treatment for pensions and annuities.
- Out-of-state pensions: Fully taxable if you are a California resident when you receive the payments.
- Nonresidents: California does not tax your pension or annuity income (post-1995 rule for qualified plans).
Part-year residents prorate based on months of residency. Use Schedule CA (540 or 540NR) to report adjustments.
Special note for military pensions: Starting in 2025 (and through at least 2030), eligible veterans and surviving spouses can exclude up to $20,000 of military retirement pay or survivor benefits if federal AGI is under $125,000 (single) or $250,000 (joint). This is a new partial exclusion—California was previously one of the few states taxing it fully.
How Are Traditional IRA Distributions Taxed in California?
Traditional IRA withdrawals are fully taxable in California as ordinary income, just like federally (minus any nondeductible contributions).
- Basis recovery: Pre-1987 nondeductible contributions are recovered first on a tax-free basis. Post-1986 contributions use a pro-rata method (Form 8606). California may require Schedule CA adjustments if your CA basis differs from federal.
- Rollover or conversion: Taxed as ordinary income in the year received (except direct rollovers).
- Inherited IRAs: Taxed to the beneficiary under the same rules.
California follows federal IRA contribution limits and deduction rules but requires adjustments on your state return if needed.
California State Taxes on 401(k) and Similar Employer Plans
Distributions from 401(k), 403(b), 457 plans, profit-sharing, and other qualified retirement plans are taxable in California exactly as they are federally for residents.
- Traditional 401(k) withdrawals = ordinary income.
- No special exclusion for these plans (unlike Social Security).
- Lump-sum distributions follow federal rules.
If you worked outside California but now live there, the full distribution is taxable upon receipt as a resident.
Roth IRAs and Roth 401(k)s: Often Tax-Free in California
Qualified Roth IRA and Roth 401(k) distributions are not taxable in California (same as federal rules).
- Must meet the 5-year rule and age 59½ (or other qualifying event).
- Non-qualified withdrawals of earnings are taxable (and may trigger the early distribution penalty).
This makes Roth accounts especially attractive for California retirees planning ahead.
Early Withdrawal Penalties: The Extra 2.5% California Hit
Taking money from pensions, IRAs, 401(k)s, or annuities before age 59½ triggers an additional 2.5% state penalty on top of the federal 10% (or 25% for certain SIMPLE plans).
- Report on Form FTB 3805P (Additional Taxes on Qualified Plans).
- Exceptions mirror many federal ones (disability, death, certain medical expenses, first-home purchase up to $10,000, higher education, etc.).
- Applies to the taxable portion of the distribution.
Plan carefully—early access can be costly in California.
California Income Tax Brackets for Retirement Income (2025 Tax Year)
Retirement distributions stack with other income and are taxed at these progressive rates (filed in 2026):
| Tax Rate | Single / Married Filing Separately | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 1% | $0 – $11,079 | $0 – $22,158 | $0 – $22,173 |
| 2% | $11,080 – $26,264 | $22,159 – $52,528 | $22,174 – $52,530 |
| 4% | $26,265 – $41,452 | $52,529 – $82,904 | $52,531 – $67,716 |
| 6% | $41,453 – $57,542 | $82,905 – $115,084 | $67,717 – $83,805 |
| 8% | $57,543 – $72,724 | $115,085 – $145,448 | $83,806 – $98,990 |
| 9.3% | $72,725 – $371,479 | $145,449 – $742,958 | $98,991 – $505,208 |
| 10.3% | $371,480 – $445,774 | $742,959 – $891,548 | $505,209 – $606,350 |
| 11.3% | $445,775 – $1,000,000 | $891,549 – $1,000,000 | $606,351 – $1,000,000 |
| 12.3% | Over $1,000,000 | Over $1,000,000 | Over $1,000,000 |
Mental health services tax: Additional 1% on taxable income over $1 million (effective top rate 13.3%).
Social Security, railroad retirement (Tier 1 & 2), and qualified Roth distributions do not count toward these brackets.
How to Report Retirement Income on Your California Tax Return?
- Start with federal AGI (includes taxable pensions, IRAs, 401(k)s).
- Use Schedule CA (540) for residents or 540NR for non/part-year to make adjustments (e.g., military exclusion, basis recovery, nontaxable railroad benefits).
- Attach Form FTB 3805P if you have early distributions.
- Pensions/annuities reported on Form 540 line 13 (pension and annuity income).
FTB Publication 1005 provides detailed worksheets for basis and adjustments.
Strategies to Minimize California Taxes on Pensions, IRAs, and 401(k)s
- Roth conversions: Pay taxes now at potentially lower rates; future qualified withdrawals are tax-free.
- Tax-efficient withdrawal order: Consider Roth first, then taxable accounts, then traditional IRAs/401(k)s.
- Move before large distributions (if feasible): Nonresidents avoid CA tax on retirement income.
- Timing: Spread withdrawals to stay in lower brackets.
- Military exclusion: Maximize the $20,000 subtraction if eligible.
- Charitable giving: Qualified charitable distributions (QCDs) from IRAs can reduce taxable income (age 70½+).
Note: A 2026 ballot initiative seeks to prohibit future taxes on retirement account ownership/accumulation, but it is not yet law.
Frequently Asked Questions About California Retirement Taxes
Does California tax Social Security? No—fully exempt.
Are 401(k) withdrawals taxable in California? Yes, for residents (traditional plans).
Do I pay CA tax on an out-of-state pension? Yes, if you are a resident.
What about required minimum distributions (RMDs)? Same as federal—taxable if from traditional accounts.
Can I deduct IRA contributions on my CA return? Yes, California generally follows federal deduction rules.
Consult a tax professional or use FTB resources for your specific situation, as rules can depend on residency status, basis, and timing.
Sources: California Franchise Tax Board Publication 1005 (2025), FTB forms and instructions, official tax rate schedules, and supporting analyses from AARP and state budget documents. Rules are current as of 2026 filings; always verify with ftb.ca.gov for the latest.