EDITOR'S NOTE: This article was originally published in the June 2010 issue of Kiplinger's Retirement Report. To subscribe, click here.
When you are considering a Roth conversion, the federal tax bite is not your only concern. If you live in a state that taxes retirement income, your state will probably pile on with a tax bill, too. On the bright side, if you're in a state that gives retirement income a break -- or doesn't tax income at all -- you'll get a break on the conversion.
The key is to know how your state tax authority treats a Roth conversion before you make your decision. Residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming can convert without state tax because those states don't tax income. New Hampshire and Tennessee collect tax on interest and dividends, but don't tax IRA distributions, so residents can convert without state tax consequences.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Many states that have a personal income tax offer exemptions for retirement income. In Pennsylvania, where contributions to a retirement account are not tax-deductible, a retiree over age 59 1/2 can make tax-free withdrawals from a 401(k) or IRA. Account owners can do a Roth conversion without any state tax consequence, including no state tax owed on earnings, says Stephen Bleyer, a certified public accountant in the Bala Cynwyd, Pa., office of Marcum, an accounting firm.
Meanwhile, some states offer partial exclusions of retirement income. In Iowa, taxpayers 55 and older can exclude up to $6,000 of retirement income ($12,000 for married taxpayers). The Iowa Department of Revenue says Roth conversion income is eligible for that exclusion. Special breaks for retirement income, such as Iowa's, are often based on age or income.
If your state taxes retirement income, prepare to add the bill to your federal tab. Virginia, for example, has a top income-tax rate of 5.75%. If you convert $200,000, you'd owe nearly $11,300 in state tax -- on top of what you owe Uncle Sam. (All states follow the federal rule, which allows taxpayers to report a 2010 conversion over the following two tax years.)
Before converting, check with your state tax department. If you plan to retire in a different state, check that state's tax law. Depending on how that state stacks up to your current state, you might want to accelerate a Roth conversion or hold off.
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
How to Keep Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
457 Plan Contribution Limits for 2026Retirement plans There are higher 457 plan contribution limits in 2026. That's good news for state and local government employees.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2026SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, and up to $72,000 in 2026.
-
Roth IRA Contribution Limits for 2026Roth IRAs Roth IRAs allow you to save for retirement with after-tax dollars while you're working, and then withdraw those contributions and earnings tax-free when you retire. Here's a look at 2026 limits and income-based phaseouts.
-
SIMPLE IRA Contribution Limits for 2026simple IRA For 2026, the SIMPLE IRA contribution limit rises to $17,000, with a $4,000 catch-up for those 50 and over, totaling $21,000.
-
457 Contribution Limits for 2024retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2026retirement plans The Roth 401(k) contribution limit for 2026 has increased, and workers who are 50 and older can save even more.
