Will my state tax a 401(k) rollover or a Roth conversion?

By Kaz · Published 6 October 2026 · How this site checks figures

Summary

Not for a direct rollover in the four states checked here: pretax 401(k) money moved straight into a traditional IRA isn't taxed by California, Illinois, Pennsylvania or New York, because it isn't income federally either. A Roth conversion is where states split. California taxes the converted amount the way the IRS does. Illinois lets you subtract it. Pennsylvania doesn't tax a full trustee-to-trustee conversion. New York taxes it but lets you exclude up to $20,000 if you're 59½ or older. And a state you've moved away from can't tax the conversion at all, because federal law bars states from taxing the retirement income of nonresidents.

One conversion, five tax returns

Example: you convert $40,000 from a traditional IRA with no nondeductible basis to a Roth IRA, trustee to trustee, with nothing withheld. Federally, all $40,000 is taxable. What each state treats as taxable:

Where you live when you convert	Age 57	Age 62	What the state says
California	$40,000	$40,000	Taxed as federally, unless your California basis differs; the 2½% early-distribution tax doesn't apply to conversions
Illinois	$0	$0	IRA distributions "including amounts rolled over to a Roth IRA" are subtracted
Pennsylvania	$0	$0	A conversion rolled over "directly (trustee to trustee)" in full isn't taxable
New York	$40,000	$20,000	Taxed as federally; up to $20,000 excluded if you're 59½ at conversion
A state you left before converting	$0	$0	4 U.S.C. 114 bars taxing a nonresident's retirement income

The table shows the taxable amount, not the tax. Rates and brackets vary; apply your own state's to the figure in the row. These are the five cases the official pages answer directly. Other states have their own rules, and some of them have no income tax at all; check your state revenue department's page for "IRA" and "conversion" before relying on a table that leaves your state out.

Pennsylvania and the withheld tax

Pennsylvania's full-conversion rule turns on withholding. The 2025 PA-40 instructions say that "if federal tax is withheld from a rollover distribution, the amount of federal tax withheld must also be reimbursed into the new IRA account in order for the rollover to be considered nontaxable for PA PIT purposes."

So if you convert $40,000 at 57 and ask the IRA custodian to withhold 10% for federal tax, $36,000 lands in the Roth IRA and $4,000 goes to the IRS. Pennsylvania treats the $4,000 that didn't reach the new IRA as a distribution, taxable "to the extent the amount not transferred into the new IRA exceeds the adjusted basis" of the old one. With no basis, $4,000 is taxable in Pennsylvania unless you replace it from other money. At 62 the result is different: the instructions treat IRA distributions received "on or after reaching the age of 59½" as not taxable, so the withheld amount is out of Pennsylvania's reach.

New York's $20,000

New York's guidance on conversions is a memo dated December 24, 1998, still on the department's site. It says conversion income "is taxable to the same extent as for federal income tax purposes," and that "the taxpayer can exclude up to $20,000 of the conversion income if the taxpayer is age 59 ½ at the time of the conversion." The $20,000 is the same pension and annuity exclusion that covers other retirement income, so a pension or other IRA withdrawals in the same year count against the same $20,000. A married couple can each have $20,000 if each has qualifying income.

Turning 59½ partway through the year matters. The department's page for retired people says the exclusion applies only to income "received on or after you became 59½." A conversion done in February by someone who turns 59½ in June gets no exclusion that year.

Moving before you convert

Section 114 of Title 4 of the U.S. Code says "no State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State." The definition covers IRAs, qualified plans such as 401(k)s, and 457 plans. For someone who lives in New York now and plans to retire to a state with lower or no income tax, the state of residence when the conversion happens decides which rules apply. Which state you're a resident of is decided under that state's own tests, not by the date on a moving van.

California's other number

California's early-distribution tax is 2½% of the amount included in income, and 6% for a SIMPLE IRA distribution in its first two years, under the FTB 3805P instructions. Conversions and rollovers are exempt. A cash-out isn't: a 45-year-old Californian who cashes out $40,000 owes $1,000 to California on top of the federal 10% additional tax of $4,000, before income tax at either level. Cashing out against rolling over has the federal side, and the two-year rule for SIMPLE IRAs has the 6% case.

How much of a conversion is taxable federally in the first place, including after-tax money in the 401(k), is worked through in which part of a 401(k) is taxed when it goes to a Roth IRA. The Roth IRA still pays fund expenses after the conversion, and the fee calculator shows what a 1% yearly fee would take from that $40,000 over time.

Sources

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