Does Idaho Tax 401(k) Distributions?

Idaho does tax distributions from 401(k) plans. The state treats these withdrawals as regular income, and they are subject to the state’s flat income tax. While Idaho offers a deduction for certain types of retirement income, it is important to understand that this deduction does not apply to withdrawals from 401(k)s or Traditional IRAs.

Idaho’s General Approach to Taxing Retirement Income

Idaho includes distributions from traditional retirement accounts as taxable income. When you withdraw funds from your 401(k), the amount is added to your other earnings and taxed at the state’s flat income tax rate of 5.3% for all taxable income as of early 2025.

This tax treatment also applies to withdrawals from other common retirement savings vehicles funded with pre-tax dollars, such as Traditional IRAs, 403(b) plans, and Simplified Employee Pension (SEP) IRAs. Social Security benefits are an exception and are not taxed by the state.

The Idaho Retirement Benefits Deduction

Idaho’s tax code includes a deduction for certain types of retirement income, but this does not apply to 401(k) distributions or withdrawals from Traditional IRAs.

This deduction is for benefits from specific sources, including military retirement, the U.S. Civil Service Retirement System (CSRS), the Idaho Fireman’s Retirement Fund, and certain policemen’s retirement funds. To qualify, an individual must be age 65 or older, or age 62 or older and classified as disabled. For the 2024 tax year, an eligible individual could deduct up to $45,864 of their qualifying retirement income. For married couples filing jointly, the maximum deduction was $68,796.

This deduction is not automatic and must be calculated and claimed on an Idaho income tax return. The amount of the deduction can be reduced by the total Social Security benefits received during the year.

Impact of Residency Status on Taxation

Your residency status plays a direct role in how Idaho taxes your 401(k) distributions. The rules differ for full-year residents, part-year residents, and nonresidents, determining which state has the primary right to tax your retirement income.

Full-Year Residents

If you are a full-year resident of Idaho, the state taxes all of your income, regardless of where it was earned, meaning all 401(k) distributions are subject to Idaho’s income tax. As a full-year resident, you are also entitled to claim any applicable deductions for which you have qualifying income.

Part-Year Residents

Part-year residents are taxed only on the income they receive while considered an Idaho resident. Therefore, any 401(k) distributions taken during the period you officially resided in the state are subject to Idaho income tax. Distributions received before moving to Idaho or after moving out of the state are not taxed by Idaho.

Nonresidents

Nonresidents do not pay Idaho tax on their retirement income, as the taxation of 401(k) distributions is sourced to your state of residence at the time of withdrawal. This means that even if you worked in Idaho and contributed to your 401(k), if you are a resident of another state when you take the distribution, you will not owe Idaho income tax on that money.