Does Arkansas Tax 401(k) Distributions? Exemption, Roth, Rollovers

Yes, Arkansas does tax 401(k) distributions. The state treats withdrawals from a traditional 401(k) as ordinary income and applies its graduated income tax rates, with a top rate of 3.7% starting January 1, 2026.¹ The good news: the first $6,000 of qualifying retirement income each year is exempt from Arkansas tax, and a qualified Roth 401(k) distribution generally passes through untaxed.

How Arkansas Taxes a Traditional 401(k) Withdrawal

When you pull money from a traditional 401(k), Arkansas adds the taxable portion to your wages, interest, and any other income for the year, then runs the total through its graduated brackets. The top individual rate falls from 3.9% in 2025 to 3.7% in 2026.¹ Lower brackets are taxed at reduced rates, so not every dollar faces the top rate.

This state tax sits on top of federal income tax, which runs from 10% to 37%. A large distribution can push your combined rate up fast. The $6,000 Arkansas exemption helps on the state side only; it does nothing for your federal bill.

The $6,000 Retirement Income Exemption

Arkansas law lets you exclude the first $6,000 of retirement benefits from state income tax each year, and 401(k) plans qualify. The exemption also covers pensions, profit-sharing plans, employee stock ownership plans, and SEP plans.² The administrative rules specifically name cash or deferred arrangements, the technical label for 401(k)s, as eligible.³

A few limits to know. If you take distributions from more than one retirement account in the same year, the cap stays at $6,000 total; you cannot claim it separately per account. Married couples filing jointly can each claim $6,000 if both spouses receive qualifying retirement income, which brings the household exemption to $12,000.² And if your qualifying distributions for the year total less than $6,000, you can only exclude what you actually received.

At the 2026 top rate, the full exemption saves up to about $222 per person. Modest on its own, meaningful across a long retirement, and foolish to leave on the table.

Roth 401(k) Distributions

Roth 401(k) contributions go in after tax, so a qualified distribution comes out federally tax-free. The taxable amount on your Form 1099-R is generally zero, and because Arkansas builds its return off the federal taxable amount, the state collects nothing either.

To be qualified, the account must have been open at least five years (counted from January 1 of the year of your first Roth 401(k) contribution), and the distribution must happen because you reached 59½, became disabled, or died. Miss either requirement and the earnings portion can be taxed as ordinary income at both levels.

Early Withdrawals Before Age 59½

Arkansas does not add a state-level penalty on early 401(k) withdrawals. The distribution is simply taxed as ordinary income at the regular graduated rates. The 10% federal early-withdrawal penalty still applies unless you fit a federal exception.⁴

Some plan administrators withhold a flat percentage for Arkansas tax when they process an early distribution. That withholding is a prepayment against your regular state tax, not an extra penalty, and you reconcile it when you file.

Watch Out When You Roll a 401(k) Into an IRA

The $6,000 Arkansas exemption works differently for traditional IRAs than for employer plans. For an IRA, the exemption only applies to distributions received after you turn 59½, with narrow exceptions for death or disability.² Early IRA withdrawals for medical bills, education, or a first home do not qualify for the state exclusion even if they escape the federal penalty.

So if you leave a job before 59½ and roll your 401(k) into a traditional IRA, you can lose access to the Arkansas exemption on anything you pull from it. Leaving the money in the employer plan preserves eligibility.

Required Minimum Distributions

You must begin taking RMDs from a traditional 401(k) by April 1 of the year after you turn 73 if you were born between 1951 and 1959, or after you turn 75 if you were born in 1960 or later.⁵ Every RMD after the first is due by December 31.

Arkansas taxes RMDs the same as any other 401(k) withdrawal, and the $6,000 exemption applies. One timing trap: if you delay your first RMD and take two in the same calendar year, you still get only one $6,000 exemption for that year.

If You Move Out of Arkansas

Once you establish residency in another state, Arkansas can no longer tax your 401(k) distributions. Federal law at 4 U.S.C. § 114 bars any state from taxing retirement income paid to a nonresident, and that protection covers 401(k) plans.⁶ The tax rules of your new state apply instead.

Claiming the Exemption on Your Arkansas Return

You will receive a Form 1099-R from each plan that paid you during the year. Box 1 is the gross distribution, Box 2a is the taxable amount, and Box 14 shows any Arkansas tax already withheld.⁷

To take the exemption, you subtract up to $6,000 from the taxable amount on your 1099-R and report the result on your return. The Department of Finance and Administration’s guidance walks through the calculation, which flows through the AR1000AD adjustment schedule.⁸ You can file electronically through the Arkansas Taxpayer Access Point or mail a paper return to the Department of Finance and Administration.⁹

1
Arkansas House of Representatives. Tax Cuts Passed in Special Session
2
Justia. Arkansas Code 26-51-307 – Retirement or Disability Benefits – Definition
3
Code of Arkansas Rules. 26 CAR 100-118 Retirement Plans and Disability Benefits – Arkansas Code 26-51-307
4
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
5
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
6
Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income
7
Internal Revenue Service. Form 1099-R – Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
8
Arkansas Department of Finance and Administration. Pensions and Annuities
9
Arkansas Department of Finance and Administration. Taxpayers