Yes, California taxes IRA distributions. Withdrawals from a Traditional IRA count as ordinary income on your state return and are taxed at California’s graduated rates, which run from 1% up to 13.3% once the Mental Health Services Tax surcharge kicks in. Qualified Roth IRA distributions escape state tax entirely. The wrinkles that catch California residents off guard are a 2.5% state penalty on early withdrawals, a shorter list of penalty exceptions than the federal rules allow, and the state’s treatment of qualified charitable distributions.
How Traditional IRA Withdrawals Are Taxed
California starts with your federal adjusted gross income, so any Traditional IRA distribution that landed on your federal return is already sitting on your state return. From there, California applies its own brackets. For 2026, single filers pay 1% on the first $11,079 of taxable income and up to 12.3% on income above $742,953.
If your total taxable income clears $1 million in any year, an additional 1% Mental Health Services Tax applies to the amount above that threshold. That pushes the effective top rate to 13.3%. A single large withdrawal or a big Roth conversion can drag someone who isn’t normally a high earner into that surcharge for one year, which is why the size and timing of distributions matters more in California than almost anywhere else.
Basis From Non-Deductible Contributions
Non-deductible contributions have already been taxed once, so the portion of a withdrawal representing that basis comes out tax-free. The complication is that your California basis may not match your federal basis. Before 1987, California and the federal government used different IRA deduction limits, so a contribution deductible on your federal return might not have been deductible on your California return, or the reverse. If any of your contributions fall in that window, you keep separate basis calculations and report the difference as an adjustment on Schedule CA. The Franchise Tax Board expects you to keep records as long as they affect the calculation.1Franchise Tax Board. Keeping Your Tax Records
Roth IRA Distributions
California conforms to the federal treatment of Roth IRAs under IRC Section 408A.2Franchise Tax Board. Legal Ruling 1998-4 A qualified Roth distribution is entirely free of California income tax. To qualify, the account must have been open at least five tax years (measured from January 1 of the year you first contributed to any Roth IRA) and the withdrawal must occur after you turn 59½, become disabled, die, or use up to $10,000 for a first home purchase.3Internal Revenue Service. Roth IRAs
You can pull your own Roth contributions back out tax-free and penalty-free at any age, because those dollars were taxed on the way in. The ordering rules pull contributions first and earnings last. If a distribution doesn’t qualify, only the earnings portion is taxed at your ordinary California rate.
Early Withdrawals: The 2.5% California Penalty
If you take money out of a Traditional IRA before age 59½, you owe income tax on the distribution plus a penalty. The federal penalty is 10%. California adds its own 2.5% on top.4Franchise Tax Board. Early Distributions Combined, that’s 12.5% in penalties before you even count the income tax. The California piece is reported on Form FTB 3805P.
Both governments allow exceptions, but the lists don’t line up. California recognizes the following IRA penalty exceptions:
- Reaching age 59½
- Total and permanent disability of the account owner
- Distributions to beneficiaries after the owner’s death
- Substantially equal periodic payments based on life expectancy
- Unreimbursed medical expenses exceeding 7.5% of AGI
- Health insurance premiums after 12 weeks of unemployment benefits
- Qualified higher education expenses
- First-time home purchase, up to $10,000
- Distributions forced by an IRS levy
- Qualified reservist distributions for active duty of at least 180 days
Several newer federal exceptions are missing from that list. The federal government waives its penalty for birth and adoption expenses up to $5,000, emergency personal expenses up to $1,000 per year, domestic abuse victim distributions, and federally declared disaster distributions.5Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions California has not adopted these.6Franchise Tax Board. 2025 Instructions for Form FTB 3805P You can qualify for a federal waiver and still owe the 2.5% California penalty on the same withdrawal.
Qualified Charitable Distributions
Federal law lets IRA owners age 70½ and older send up to $111,000 per person in 2026 directly from an IRA to a qualifying charity and exclude the amount from gross income. A QCD can also satisfy the year’s required minimum distribution.
California has historically not conformed to the federal QCD exclusion under IRC Section 408(d)(8). The distribution stays out of federal AGI but generally has to be added back as taxable income on Schedule CA. You keep the federal benefit and still owe California income tax on the donated amount. This is one of the biggest state-specific surprises for California retirees who use QCDs as a tax planning tool. Check the current year’s Schedule CA instructions on the FTB website, because conformity can change with new legislation.
Required Minimum Distributions
Starting at age 73, you must take annual RMDs from your Traditional IRA. California follows the federal requirement.7Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Each year’s RMD is your prior-year December 31 balance divided by an IRS life expectancy factor, and the amount is taxed as ordinary income on your state return.
Roth IRAs have no lifetime RMD for the original owner, which makes them a useful bracket-management tool in California retirement planning. Missing an RMD carries a 25% federal penalty on the shortfall, dropping to 10% if you fix it within two years.7Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs California does not impose a separate RMD penalty, but the missed amount still counts as taxable income for state purposes in the year it should have been taken.
Rollovers and Roth Conversions
A trustee-to-trustee transfer between IRAs is not a taxable event in California or federally. An indirect rollover, where you receive a check and redeposit it, stays tax-free only if you complete the transfer within 60 days.8Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Miss that window and the whole amount becomes a taxable distribution with the state and federal penalties attached if you’re under 59½.
Converting a Traditional IRA to a Roth IRA is taxable in California. The converted amount, minus any California basis, is added to your taxable income for the year and taxed at your marginal rate.9Franchise Tax Board. IRA Deduction Because California’s top rate reaches 13.3%, large conversions in a single year can trigger the Mental Health Services Tax surcharge. Spreading a conversion across multiple years keeps each year’s income below the thresholds where the steepest rates apply.
Inherited IRAs
Distributions from an inherited Traditional IRA are taxable income in California just as they were for the original owner. Most non-spouse beneficiaries fall under the 10-year rule and must empty the account by December 31 of the tenth year after the owner’s death.10Internal Revenue Service. Retirement Topics – Beneficiary Every withdrawal along the way is California taxable income. Taking the money gradually spreads the tax over multiple years; waiting and taking a lump sum at year 10 can spike your California bracket.
Spouses, minor children of the deceased, disabled or chronically ill beneficiaries, and beneficiaries no more than 10 years younger than the original owner get more flexible timelines. Inherited Roth IRAs follow the 10-year rule for most non-spouses, but withdrawals are generally tax-free if the original owner met the five-year holding requirement before death.
If You’ve Left California
California cannot tax your IRA distributions once you’re a legitimate resident of another state. Federal law under 4 U.S.C. § 114 bars states from taxing the retirement income of nonresidents, including IRA distributions.11Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income It doesn’t matter that the IRA grew during decades of California residence. Once you’re out, those distributions are outside California’s reach.
Residency has to be real. The FTB scrutinizes moves by high-income taxpayers who relocate shortly before a large withdrawal or conversion. Change your driver’s license, voter registration, and mailing address, spend the majority of your time in your new state, and don’t keep a California home that looks like your primary residence.
If you move mid-year, you’re a part-year resident. Distributions received while you were still a California resident are fully taxable; distributions received after you established residency elsewhere are not.12Franchise Tax Board. Part-Year Resident and Nonresident Document the exact date of each distribution relative to your move.
Withholding and Schedule CA
California requires IRA custodians to withhold state income tax on distributions by default, at 10% of the federal tax withheld. You can opt out, but then you need to cover the tax through estimated payments or at filing. Qualified Roth distributions are exempt from mandatory withholding because they aren’t taxable.
Residents report IRA distributions on Form 540; nonresidents and part-year residents use Form 540NR.13Franchise Tax Board. What Form You Should File Both require Schedule CA, which is where every California-specific adjustment happens: basis differences, QCD add-backs, part-year subtractions, and anything else where California parts ways with the federal treatment. Early withdrawal penalties are calculated separately on Form FTB 3805P.4Franchise Tax Board. Early Distributions Getting Schedule CA right is the single most important part of California IRA reporting, because every mismatch between federal and state treatment flows through that one form.