California State Tax Withholding Rules for IRA Distributions

California state tax withholding on IRA distributions defaults to roughly 1% of your gross withdrawal on a lump sum, which is almost never enough to cover what you actually owe. The state requires your custodian to withhold unless you tell them otherwise, and you control the amount by filing EDD Form DE 4P directly with the custodian. Get that election right before the money moves, or expect a balance due and possibly an underpayment penalty when you file.

The Default Withholding Rate

Your IRA custodian is required to withhold California income tax from a distribution unless you file paperwork opting out or changing the amount.¹ The default depends on how the distribution is structured.

For a non-periodic distribution, meaning a one-time or lump-sum withdrawal, California’s default is 10% of whatever federal tax was withheld. Because the federal default on non-periodic IRA distributions is 10% of the gross amount, California’s default works out to about 1% of your total withdrawal.² On a $50,000 distribution, that is $5,000 federal and $500 state.

For periodic payments spread across more than one year, the custodian calculates California withholding from the state’s withholding schedules based on filing status and allowances. If you have not filed a certificate, the custodian applies default assumptions from those tables.

Why the Default Is Almost Always Too Low

California taxes IRA distributions as ordinary income. The state’s marginal rates run through nine brackets from 1% up to 12.3%, with an additional 1% mental health services surcharge on income above $1 million that pushes the top effective rate to 13.3%.

The gap between a 1% default and a 9.3% or higher marginal rate adds up fast. For a married couple filing jointly in 2026, the 9.3% bracket begins at $145,449 of taxable income. A $100,000 distribution landing in that bracket could generate $8,000 or more in California tax, while the default withholding captured only about $1,000. You either raise the withholding on the DE 4P or send estimated payments to close that gap.

How to Change or Waive Withholding With DE 4P

EDD Form DE 4P (Withholding Certificate for Pension or Annuity Payments) is the form that controls your California withholding. You send it to your IRA custodian, not to the Franchise Tax Board, and you want it in their hands before the distribution is processed.¹

The form gives you four choices:

Line 1 lets you opt out of California withholding completely.
Line 2 lets you specify filing status and allowances, and the custodian calculates withholding from the state’s schedules.
Line 3 lets you add a flat dollar amount on top of the line 2 calculation.
Line 4 lets you designate a flat dollar amount to withhold from each payment, bypassing the allowance method entirely.

There is no straight percentage option on the form. If you want withholding that tracks a fixed share of your distribution, calculate the dollar equivalent and enter it on line 4. One caveat the form itself flags: the custodian is not required to honor the additional amount on line 3. If they decline, the DE 4P suggests claiming single status with zero allowances to maximize withholding, then making estimated payments for any remaining shortfall.

Distributions With No California Withholding

Several common IRA transactions do not trigger California withholding at all.

Direct Rollovers

A trustee-to-trustee transfer, where your custodian moves funds directly to another retirement account, is not a taxable distribution. No federal or California withholding applies because the money never passes through your hands.³ This only works for direct transfers. If you take a check and redeposit it yourself within 60 days, the custodian must withhold on the initial distribution.

Nonresidents

If you live outside California, the state cannot tax your IRA distributions. Federal law bars states from imposing income tax on retirement income paid to someone who is not a resident.⁴ The Franchise Tax Board confirms that California does not tax IRA distributions or qualified pension plans of a nonresident.⁵ If you have moved out of state, notify your custodian of your new address so they stop withholding California tax.

Qualified Roth Distributions

Qualified distributions from a Roth IRA are tax-free at both the federal and California level because contributions were made with after-tax dollars.⁶ California conforms to the federal Roth rules under Revenue and Taxation Code Section 17501.⁷ To qualify, you must be at least 59½ (or disabled or deceased) and the account must have been open for at least five years. Non-qualified Roth withdrawals, such as early withdrawals of earnings, are taxable and subject to withholding like any other IRA distribution.

Qualified Charitable Distributions

If you are 70½ or older, you can transfer up to $111,000 per year directly from your IRA to a qualified charity. These qualified charitable distributions are excluded from taxable income entirely and count toward your required minimum distribution. Because the money goes straight to the charity and is never included in your income, no California withholding applies. QCDs cannot be directed to donor-advised funds, and your custodian codes them with Code Y on Form 1099-R.⁸

RMDs Follow the Same Default

Starting the year you turn 73, you must take required minimum distributions from a traditional IRA each year.⁹ RMDs are fully taxable and subject to the same default California withholding as any other distribution. Many retirees leave the 1% default in place and get caught by a large balance due in April. Filing a DE 4P that reflects your actual marginal rate, or setting up quarterly estimated payments, prevents that surprise.

Covering Any Gap With Estimated Payments

If withholding alone will not cover what you owe, California charges an underpayment penalty calculated as interest on the shortfall from the date each installment was due.¹⁰ You avoid it by meeting one of the state’s safe harbors:

General rule: pay at least 90% of your current year’s tax or 100% of your prior year’s tax, whichever is smaller.
If your AGI exceeds $150,000 ($75,000 if married filing separately): pay at least 90% of the current year’s tax or 110% of the prior year’s tax.
If your AGI is $1,000,000 or more ($500,000 if married filing separately): pay at least 90% of the current year’s tax. The prior-year safe harbor is not available.¹¹

If the DE 4P alone will not get you there, make quarterly estimated payments using Form 540-ES. California’s installment schedule is front-loaded and does not match the federal one: 30% of your required annual payment is due with the first installment on April 15, 40% with the second on June 15, nothing with the third, and 30% with the fourth on January 15 of the following year.¹² You can pay online through the FTB’s Web Pay portal, by electronic funds withdrawal through tax software, by credit card, or by mailing a check. Once you have made an estimated or extension payment exceeding $20,000, or filed a return with total tax liability over $80,000, all future payments must be electronic.

Claiming the Withholding on Your Return

After a distribution, your custodian sends Form 1099-R. Box 1 shows the gross distribution, Box 4 shows federal tax withheld, and Box 7 contains the distribution code identifying the type of withdrawal: Code 1 for an early distribution with no exception, Code 7 for a normal distribution after 59½, Code Q for a qualified Roth distribution, and so on.⁸

California state withholding appears in Box 14 of the same 1099-R. On California Form 540, you report the distribution as income and claim the Box 14 amount as a credit for tax already paid. If your custodian also issues FTB Form 592-B for nonresident or backup withholding, that withholding is claimed on the return as well.¹³ Attach copies of your withholding statements so the FTB can match the credit you are claiming to the payments your custodian reported.

1
Employment Development Department. DE 4P Withholding Certificate for Pension or Annuity Payments
2
Internal Revenue Service. Pensions and Annuity Withholding
3
Internal Revenue Service. Topic No. 413, Rollovers From Retirement Plans
4
Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income
5
Franchise Tax Board. FTB Pub. 1100 – Taxation of Nonresidents and Individuals Who Change Residency
6
Internal Revenue Service. Roth IRAs
7
Franchise Tax Board. Legal Ruling 1998-4
8
Internal Revenue Service. Instructions for Forms 1099-R and 5498
9
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
10
Franchise Tax Board. Common Penalties and Fees
11
Franchise Tax Board. Estimated Tax Payments
12
Franchise Tax Board. 2025 Instructions for Form 540-ES Estimated Tax for Individuals
13
Franchise Tax Board. 2025 Form 592-B Resident and Nonresident Withholding Tax Statement With Instructions