Are the gains on my IRA and 401(k) state taxable when withdrawn?

by Virgil A Kahl, CPA | Aug 12, 2015
askacpaicon I live in Pennsylvania. Are the gains on my IRA and 401(k) state taxable when withdrawn? I read that withdrawals from these are not state taxable, but I think that only pertains to my contributions. I am retired, so age isn't an issue.

The answer depends on whether you are under age 59 ½ or not, as some people retire before that age and withdraw money from their IRAs.

Distributions from an IRA are not taxable by the state of Pennsylvania if the payments are:

  • Received, including lump-sum distributions, on or after reaching the age of 59 ½ 
  • Paid to the estate, or designated beneficiary, of the participant by reason of the participant’s death
Distributions you receive before age 59 ½, even if you are retired, are taxable, even if you receive substantially equal payments and, for federal purposes, you do not pay a penalty for an early withdrawal. Distributions from an IRA, including a federal Roth IRA, are taxable to the extent the distribution exceeds your previously taxed contributions. Further, under the cost-recovery method, the taxpayer is required to remove contributions first and then the untaxed portions.

So, only if you have nondeductible contributions in your IRA would identifying the amount of contributions be necessary.

Pennsylvania law does not have any exceptions similar to the federal exceptions for withdrawal before age 59 ½.

For more resources on managing your retirement plans

Virgil A Kahl, CPA, is a certified financial planner with Spring Ridge Financial Group LLC in Wyomissing. This question was reviewed in July 2015. 
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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