Florida does not impose state income tax on distributions from 401(k) and 403(b) retirement plans. This means that you can withdraw money from these accounts in Florida without paying any state taxes on the withdrawals. However, if you are a Florida resident and you roll over your 401(k) or 403(b) into an Individual Retirement Account (IRA), the distributions from the IRA will be subject to Florida state income tax.
Does Florida Tax 401k Distributions?
Florida’s Tax for Retirement Accounts
Florida does not tax distributions from 401k accounts. This includes traditional 401k accounts and Roth 401k accounts. However, Florida does tax distributions from 403b accounts.
**1. Traditional 401k Accounts**
Traditional 401k accounts are employer- sponsored retirement accounts that allow you to save money for your retirement on a pre-tax basis. This means that you do not pay taxes on the money you contribute to your account until you withdraw it in retirement.
**2. Roth 401k Accounts**
Roth 401k accounts are also employer- sponsored retirement accounts, but unlike traditional 401k accounts, you pay taxes on the money you contribute to your account. However you do not pay taxes on the money you withdraw in retirement.
**3. 403b Accounts**
403b accounts are retirement accounts that are available to employees of certain non-profit organizations and public employers. Distributions from 403b accounts are generally not eligible for a federal income tax deduction, but they may be eligible for a state income tax deduction. In Florida, distributions from 403b accounts are fully taxable to the extent allowed under federal law.
| Account type | Florida tax status |
|—|—|
| Traditional 401k | Not taxable |
| Roth 401k | Not taxable |
| 403b | Taxable |
Federal Tax Treatment of 401(k) Distributions
The federal government taxes 401(k) distributions based on your age and the type of distribution you take.
Taxation of Qualified Distributions
Qualified distributions are distributions taken after age 59½. They are taxed as ordinary income at your current tax rate.
- Tax rate: Your current federal income tax rate
Taxation of Non-Qualified Distributions
Non-qualified distributions are distributions taken before age 59½. They are taxed as ordinary income plus a 10% early withdrawal penalty.
- Tax rate: Your current federal income tax rate
- Early withdrawal penalty: 10%
Exceptions to the Early Withdrawal Penalty
There are a few exceptions to the early withdrawal penalty, including:
- Disability: If you become disabled, you can take penalty-free distributions from your 401(k).
- Medical expenses: You can take penalty-free distributions to cover unreimbursed medical expenses that exceed 7.5% of your adjusted gross income.
- Substantially equal periodic payments: You can take penalty-free distributions if you take substantially equal periodic payments over your life expectancy or the joint life expectancy of you and your beneficiary.
- Roth 401(k) distributions: Distributions from a Roth 401(k) are tax-free if you meet certain requirements, including being at least 59½ years old and having held the account for at least five years.
Additional Taxes on Early Withdrawals
In addition to the early withdrawal penalty, you may also have to pay additional taxes on early withdrawals if you are subject to the Medicare Part B surcharge. The Medicare Part B surcharge is a 3.8% tax on investment income, including distributions from 401(k) plans.
Tax-Free Exchanges
You can avoid paying taxes on 401(k) distributions if you roll them over to another qualified retirement account, such as an IRA or a new 401(k) plan. A rollover is a tax-free transfer of funds from one retirement account to another.
State-Specific Withholding Rules
Withholding rules for 401(k) distributions vary from state to state. In some states, distributions are fully taxable, while in others, they may be partially or fully exempt. The following table provides a summary of state-specific withholding rules for 401(k) distributions:
| State | Withholding Rate |
|---|---|
| Alabama | 0% |
| Alaska | 0% |
| Arizona | 0% |
| Arkansas | 0% |
| California | 0% |
| Colorado | 0% |
| Connecticut | 0% |
| Delaware | 0% |
| Florida | 0% |
| Georgia | 0% |
| Hawaii | 0% |
| Idaho | 0% |
| Illinois | 0% |
| Indiana | 0% |
| Iowa | 0% |
| Kansas | 0% |
| Kentucky | 0% |
| Louisiana | 0% |
| Maine | 0% |
| Maryland | 0% |
| Massachusetts | 0% |
| Michigan | 0% |
| Minnesota | 0% |
| Mississippi | 0% |
| Missouri | 0% |
| Montana | 0% |
| Nebraska | 0% |
| Nevada | 0% |
| New Hampshire | 0% |
| New Jersey | 0% |
| New Mexico | 0% |
| New York | 0% |
| North Carolina | 0% |
| North Dakota | 0% |
| Ohio | 0% |
| Oklahoma | 0% |
| Oregon | 0% |
| Pennsylvania | 0% |
| Rhode Island | 0% |
| South Carolina | 0% |
| South Dakota | 0% |
| Tennessee | 0% |
| Texas | 0% |
| Utah | 0% |
| Vermont | 0% |
| Virginia | 0% |
| Washington | 0% |
| West Virginia | 0% |
| Wisconsin | 0% |
| Wyoming | 0% |
Qualified vs. Non-Qualified Distributions
When you withdraw money from your 401(k) plan, the tax treatment depends on whether the distribution is qualified or non-qualified.
Qualified Distributions
- Are made after you reach age 59½.
- Are made because you are disabled.
- Are made to your beneficiary after your death.
- Are used to pay medical expenses that exceed 7.5% of your adjusted gross income.
- Are used to pay for qualified higher education expenses.
- Are used to buy your first home.
Qualified distributions are taxed as ordinary income, but you may be eligible for a tax break if you meet certain requirements.
Non-Qualified Distributions
- Are made before you reach age 59½.
- Are not made for one of the reasons listed above.
Non-qualified distributions are taxed as ordinary income, plus you may have to pay a 10% early withdrawal penalty.
| Type of Distribution | Tax Treatment |
|---|---|
| Qualified | Taxed as ordinary income, but may be eligible for a tax break. |
| Non-Qualified | Taxed as ordinary income, plus a 10% early withdrawal penalty. |
Well, there you have it, folks! We hope this article has put your mind at ease regarding the tax implications of your 401k distributions in the Sunshine State. Remember, tax laws can change over time, so it’s always a good idea to consult with a tax professional or visit the IRS website for the most up-to-date information. Thanks for reading, and be sure to check back later for more financial tips and tricks. Until then, happy saving!