How California Taxes Pensions and IRA Distributions

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Last updated: August 15, 2026 · By Gold California Editorial

This page covers how California taxes retirement income for residents and former residents: pensions from public and private plans, traditional IRA distributions, Roth qualified withdrawals, Social Security, and the surtax that hits at very high incomes. Every figure traces to a primary source at the IRS, the Franchise Tax Board, or federal law. Rules move quickly; verify your specific numbers with a licensed CPA before you file.

How California taxes pension income

California taxes pension income as ordinary income. The taxable amount that flows to your federal return enters your California adjusted gross income and is taxed at the state's graduated rates on Form 540. This applies to a private employer plan, a governmental pension, an annuity, a 403(b), or a 457 plan (source: FTB Publication 1005, Pension and Annuity Guidelines, 2024).

There is no special California exclusion for pensions. Public plans such as CalPERS and CalSTRS are taxed the same as private-sector pensions and the same as IRA distributions. The state does not distinguish by the plan sponsor. Publication 1005 confirms that California conforms broadly to federal rules on pensions and IRAs, with a short list of exceptions.

California residents owe state tax on all income they receive as residents, from any source. A pension attributable to services performed outside California is fully taxable in California once you receive it as a California resident. Publication 1005 states this rule for out-of-state pensions on page 5 of the 2024 edition.

The state's bracket ladder tops at 12.3% on Form 540 taxable income (source: FTB Form 540 Booklet, 2024). At very high incomes the 1% Mental Health Services Tax adds another layer; that section is later on this page. Most retirees never reach the top bracket, but the rate ladder still applies to every dollar of pension income.

How California taxes traditional IRA distributions

California taxes a traditional IRA distribution as ordinary income. FTB Publication 1005 states plainly that the California treatment of IRAs is generally the same as the federal treatment (page 6). The taxable amount on your federal Form 1040 flows into your California adjusted gross income and is taxed at state rates.

Two mechanics matter. First, if all of your traditional IRA contributions were fully deductible, the entire distribution is taxable. Second, if some contributions were nondeductible, those amounts create a basis that is recovered tax-free when you take the money out (source: FTB Publication 1005, page 7).

Recovery of the nondeductible basis is computed on federal Form 8606. For contributions made after 1986, each distribution is partially a return of basis and partially taxable. California generally accepts the federal computation; an adjustment on Schedule CA (540) is only needed when the federal and California taxable amounts differ (source: FTB Publication 1005, page 7).

If you hold physical metal inside an IRA, the general distribution mechanics still apply; for the specifics on how in-kind metal is valued and taxed at the state level, see our page on California gold IRA tax rules. For every other traditional IRA, the plain answer is that California taxes the distribution as ordinary income.

Sources: California Revenue and Taxation Code sections 17043, 17087, 17501; FTB Publication 1005 (2024); FTB Publication 1032 (2024); FTB Form 3805P instructions; IRS Publication 575; IRS Publication 590-B. Checked August 2026. This is a general reference; consult your CPA for your situation.

How Roth IRA distributions are taxed in California

A qualified Roth IRA distribution is tax-free federally under Internal Revenue Code section 408A, and California conforms through Revenue and Taxation Code section 17501 (source: R&TC section 17501). The state does not add its own tax on a qualified withdrawal, because the income was already taxed on the way into the account.

A distribution is qualified when the account has been open at least five years and one of the qualifying events applies, most commonly reaching age 59.5 (source: IRS Publication 590-B, Distributions from IRAs). Your own contributions, your basis, can come out at any time without tax or penalty, regardless of the five-year clock or your age.

Earnings withdrawn from a Roth before the account is qualified are treated as taxable income for both federal and California purposes. If you are under 59.5 with no exception, that earnings portion can also draw the 10% federal and 2.5% California early-distribution taxes (source: FTB Publication 1005; FTB Form 3805P instructions). A Roth conversion is a separate event with its own tax cost in the year of conversion; ask your CPA before converting.

Social Security is fully exempt from California income tax

California does not tax Social Security benefits. Revenue and Taxation Code section 17087(a) directly states that Internal Revenue Code section 86, the federal rule that pulls part of Social Security into taxable income, shall not apply for California (source: R&TC section 17087). FTB Publication 1005 confirms that the benefits are excluded from California taxable income.

The mechanics on your return work like this. Federal Form 1040 may include a portion of your Social Security benefits in adjusted gross income. On Schedule CA (540), you subtract that federally taxable portion, so it does not enter your California taxable income (source: FTB Publication 1005, page 5).

This matters if you also draw pension or IRA distributions. Those taxable amounts flow through to California income and are taxed at state rates, while Social Security stays out of the state total. Many California retirees model the two income streams separately for that reason. Our dedicated page on California and Social Security covers the interaction in more detail.

Railroad retirement, and where it is different

U.S. Railroad Retirement benefits paid by the Railroad Retirement Board are also excluded from California income tax. Section 17087 blocks Internal Revenue Code section 86 for Tier 1 and section 72(r) for Tier 2, so both tiers stay out of California taxable income (source: R&TC section 17087(a), (b)).

One narrow point matters for former railroad workers. Publication 1005 notes that benefits paid by individual railroads, rather than by the Railroad Retirement Board, are taxable by California (page 5). If your Form 1099-R reports payments from a private railroad plan, the amount enters your California taxable income as ordinary income. Your CPA can identify which payer issued the form.

The 1% Mental Health Services Tax on income over $1,000,000

California imposes a 1% additional tax on the portion of taxable income above $1,000,000. Revenue and Taxation Code section 17043(a) is the source, added by Proposition 63 in November 2004 and operative for tax years beginning on or after January 1, 2005 (source: R&TC section 17043).

The surtax applies only to the amount over $1,000,000, not to your entire taxable income. For a single filer with $1,200,000 of California taxable income, the 1% would apply to $200,000, for an added $2,000 on top of the regular Form 540 tax. The tax funds mental health programs under the Mental Health Services Act.

Most retirees never touch the Mental Health Services Tax. It can surface, though, in a one-year event: a very large lump-sum pension distribution, a taxable Roth conversion, or a big IRA withdrawal to fund a purchase can push a household above the $1,000,000 threshold for that year alone. Our page on the Mental Health Services Tax for retirees walks through the numbers.

Moving out of California: the federal source-tax rule

A federal law limits how much California, or any state, can tax the retirement income of a former resident. Public Law 104-95, enacted January 10, 1996 and codified at 4 U.S.C. section 114, states that no state may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of that state (source: Public Law 104-95, 109 Stat. 979).

The law defines "retirement income" broadly. Covered plans include qualified trusts under IRC section 401(a), simplified employee pensions under section 408(k), 403(a) annuity plans, 403(b) annuity contracts, and individual retirement plans. The list also covers 457 deferred compensation plans, governmental plans under section 414(d), section 501(c)(18) trusts, and certain nonqualified plans that pay substantially equal periodic payments for life or a period of at least 10 years (source: 4 U.S.C. section 114(b)).

The effect is direct. Once you are a bona fide resident of another state, California cannot tax your ongoing IRA distributions, 401(k) withdrawals, pension checks, or annuity payments from work you performed in California. The rule applies to amounts received after December 31, 1995. Your new state has its own rules; some tax retirement income, others do not.

The catch is residency itself. California examines where you actually live, work, vote, register vehicles, hold a driver's license, and keep your family and property ties. A move on paper while your real life stays in California will not shift the state's claim on your income. Consult your tax advisor before relying on a move. For a deeper walk-through, see our page on leaving California in retirement.

How California treats military retired pay

Military retired pay is treated like other pensions in California. If you are a California resident, retired pay from the Department of Defense or a uniformed service enters your California adjusted gross income as ordinary income and is taxed at Form 540 rates (source: FTB Publication 1032, 2024).

Active-duty pay works differently. Publication 1032 explains that a servicemember domiciled outside California and stationed in California excludes military compensation from California income when computing tax on nonmilitary income. A California-domiciled servicemember, by contrast, includes military pay in California income, subject to the source rules for pay earned while permanently stationed outside the state (source: FTB Publication 1032, page 3).

Two federal points connect here. Public Law 104-95 covers retired military pay through its definition of retirement income, so a former California resident who becomes a bona fide resident of another state can generally stop paying California tax on the retired pay going forward. Separately, California conforms to the federal HEART Act provisions for military death gratuities and Servicemembers' Group Life Insurance proceeds rolled into a Roth IRA (source: FTB Publication 1032, page 4).

Estimated tax payments on retirement income

California generally requires quarterly estimated tax payments if you expect to owe more than $500 in California income tax after subtracting withholding and credits. Form 540-ES is the vehicle. The payment schedule is unusual: 30% for the first installment, 40% for the second, none for the third, and 30% for the fourth (source: FTB Form 540-ES Instructions, 2025).

The 2025 due dates are April 15, 2025 for the first payment; June 16, 2025 for the second; September 15, 2025 for the third; and January 15, 2026 for the fourth. The FTB updates the due-date table each year. Verify the current-year dates on the linked instructions before you file.

The safe-harbor rule works like this. You avoid an underpayment penalty if your total payments equal or exceed the smaller of 90% of the tax shown on the current-year return or 100% of the tax shown on the prior-year return. Higher-income taxpayers with prior-year California adjusted gross income above $150,000 (or above $75,000 if married filing separately) must use 110% of the prior-year tax, not 100% (source: FTB Form 540-ES Instructions, 2025).

Retirees usually have a choice. You can ask a pension administrator or an IRA custodian to withhold California tax at the source, or you can make Form 540-ES payments directly. Withholding is treated as paid evenly across the year, which can make the safe harbor easier to hit. For the deeper mechanics and worked examples, see our page on California estimated tax payments on Form 540-ES.

How to report pension and IRA income on your California return

The steps below outline how a California resident reports pension and traditional IRA income. They describe the mechanics; they are not tax advice, and your custodian, plan administrator, or CPA handles the specifics.

1. Collect your Form 1099-R. The plan administrator or IRA custodian issues one for each pension, annuity, or IRA distribution. Confirm the gross amount, the taxable amount, and the distribution code in the boxes.
2. Complete federal Form 8606 if you have IRA basis. If you made any nondeductible IRA contributions, Form 8606 computes the basis recovery, and California generally accepts the federal figure per FTB Publication 1005.
3. Report the taxable amount on federal Form 1040. Enter the taxable pension and IRA amounts as ordinary income, which sets the figure that flows to your California return.
4. Subtract Social Security on Schedule CA (540). Any Social Security amount included in federal AGI is removed on Schedule CA (540) so it does not enter California taxable income.
5. Adjust for any California-specific differences. Nonconforming items (some prior-year IRA deductions, health savings account differences, certain rollovers) are handled on Schedule CA (540); FTB Publication 1005 explains each case.
6. Compute the tax on Form 540. The state's graduated rate schedule applies, and if your taxable income exceeds $1,000,000, add the 1% Mental Health Services Tax on the excess per R&TC section 17043.
7. Attach Form 3805P for any early-distribution tax. If you are under age 59.5 with no exception and took a distribution, the 2.5% California additional tax is reported on Form 3805P alongside your Form 540.
8. Set up next year's estimated payments if needed. If you expect to owe more than $500 after withholding, file Form 540-ES on the 30/40/0/30 schedule to meet the safe harbor.

If you are unsure which boxes apply or whether a nonconformity affects your specific numbers, a licensed CPA is the right call. Consult your tax advisor for your specific situation.

When the California tax bill is worse than expected

A balanced read has to name when California tax on retirement income lands harder than a quick estimate suggests. Several situations push the bill higher than a rule-of-thumb approach expects.

• A big one-year distribution climbs the bracket ladder. A large lump-sum pension payout or a big IRA withdrawal can push more income into higher California brackets than a spread-out approach would.
• The 1% Mental Health Services Tax quietly triggers. A single event, such as a Roth conversion or a large 401(k) rollover-to-taxable move, can push a household past the $1,000,000 threshold and add 1% on the excess.
• An early distribution stacks two penalty taxes. Before age 59.5 with no exception, the 10% federal and 2.5% California additional taxes combine for 12.5%, on top of ordinary income tax.
• Nondeductible IRA basis is easy to lose. If Form 8606 was never filed in the year of a nondeductible contribution, proving the basis later takes documentation many households do not keep.
• Out-of-state pensions still count for residents. A pension earned entirely in another state is fully taxed by California if you are a California resident when you receive it, per Publication 1005.
• Estimated payments arrive on an unusual schedule. California's 30/40/0/30 split differs from the even federal quarters and catches retirees who set autopay to 25% each period.

None of this makes retirement in California a bad idea. It means timing, order of income sources, and one-year events carry real state-tax weight. Modeling a big distribution year with a licensed CPA before you act is the sensible step, and this page is background, not tax advice.

California pension and IRA tax questions, answered

Does California tax pension income?

Yes. California taxes public and private pension income as ordinary income at Form 540 rates that reach 12.3% at the top bracket. CalPERS, CalSTRS, private employer pensions, 403(b) and 457 payments all flow into California adjusted gross income. FTB Publication 1005 is the primary source. Consult your CPA for your specific numbers.

Does California tax IRA distributions?

Yes, for traditional IRAs. The California treatment of IRAs is generally the same as the federal treatment, per FTB Publication 1005. The taxable portion of a distribution enters your California adjusted gross income as ordinary income. Qualified Roth IRA distributions are not taxed federally under IRC section 408A, and California conforms through R&TC section 17501.

Does California tax Social Security?

No. California does not tax Social Security benefits at all. Revenue and Taxation Code section 17087(a) blocks Internal Revenue Code section 86 for California purposes. If part of your Social Security is federally taxable, you remove that amount on Schedule CA (540) so it does not enter California taxable income. Publication 1005 confirms the mechanics.

What is the top California income tax rate on a pension or IRA distribution?

California's regular income tax reaches 12.3% at the top Form 540 bracket. On top of that, a 1% Mental Health Services Tax applies to the portion of taxable income above $1,000,000 under R&TC section 17043, for a top marginal rate of 13.3%. Most retirees never reach the top bracket, but every dollar of pension income sits on the graduated ladder.

Can California tax my pension after I move out of state?

Generally, no. Public Law 104-95, codified at 4 U.S.C. section 114, bars any state from taxing the retirement income of an individual who is not a resident or domiciliary of that state. The law covers 401(a) plans, SEP-IRAs, 403(a) and 403(b) plans, IRAs, 457 plans, governmental plans, and certain nonqualified plans that pay life-based periodic payments. Residency is examined by facts and circumstances, not just address.

Do I need to make quarterly estimated payments to California on my retirement income?

Usually yes if you expect to owe more than $500 in California income tax after withholding. Form 540-ES uses an unusual schedule: 30% of the required annual payment is due first, 40% second, none third, 30% fourth. The safe harbor is 90% of the current-year tax or 100% (110% for higher-income filers) of the prior-year tax, per FTB Form 540-ES Instructions.

Is military retired pay taxed in California?

Yes, for California-resident retirees. Military retired pay is treated like other pensions and taxed as ordinary income at Form 540 rates per FTB Publication 1032. Active-duty pay works differently: a servicemember domiciled outside California excludes military compensation from California income. A former California resident who moves and becomes a bona fide resident of another state is protected on retired pay by Public Law 104-95 going forward.

What about the 1% Mental Health Services Tax?

The 1% Mental Health Services Tax applies to the portion of your California taxable income above $1,000,000, per R&TC section 17043(a), operative since January 1, 2005. It is added to the regular Form 540 tax, and it can be triggered in a one-year event such as a large Roth conversion or a big lump-sum distribution. Consult your CPA before an event that could push you across the threshold.