Pennsylvania does not tax IRA distributions taken after age 59½, and it does not tax distributions paid on account of disability or death. Everything else can be taxable at the state’s flat 3.07% rate, but only to the extent the withdrawal exceeds what you originally contributed.1Department of Revenue. Tax Rates That contribution-first rule matters, because it often shrinks the bill on early withdrawals to far less than the federal number.
Distributions After Age 59½ Are Exempt
Once you’ve reached 59½, Pennsylvania stops caring how you take the money out. Lump sum, periodic payments, required minimum distributions — all exempt from state personal income tax.2Department of Revenue. Gross Compensation Federal RMDs don’t begin until age 73 under current law, so by definition they always clear the state’s age threshold.
The state uses a simpler standard for IRAs than it does for employer retirement plans: a distribution is exempt so long as you would not owe the federal 10% early withdrawal penalty. Reaching 59½ is the most common way to meet that test. Disability and death distributions to a beneficiary also qualify.
Pennsylvania ignores whether a distribution is “qualified” under federal rules. Deductible contributions, non-deductible contributions, mixed history — none of that changes the state answer once you’ve hit the age.
Early Withdrawals Before Age 59½
Withdrawals taken before 59½ are taxable in Pennsylvania and get reported as compensation on Line 1a of the PA-40.3Pennsylvania Department of Revenue. 2025 Pennsylvania Personal Income Tax Return Instructions (PA-40 IN) The state does not recognize the federal exceptions to the early withdrawal penalty. A hardship withdrawal that avoids the federal 10% penalty is still a taxable early distribution for Pennsylvania purposes.
Cost Recovery: Your Contributions Come Out First
Pennsylvania already taxed the money you earned before you contributed it, so it doesn’t tax the same dollars again on the way out. Under the state’s cost recovery method, every early distribution is treated as a return of your contributions first, tax-free, until your cumulative withdrawals exceed your cumulative contributions. Only the earnings portion above that basis is taxed.4Commonwealth of Pennsylvania. IRA Losses – Goodwill Payment
Say you contributed $50,000 over the years and the account is now worth $80,000. Your first $50,000 in early withdrawals is not taxed by Pennsylvania. The next $30,000 would be taxable at 3.07%. This differs from the federal method, which generally treats each withdrawal as a proportional mix of contributions and earnings.
Your 1099-R will usually show distribution Code 1 in Box 7 for an early distribution, and the PA-40 instructions confirm Code 1 is taxable for state purposes with cost recovery applied. Keep records of your cumulative contributions across every year you’ve held the account, because the state expects you to be able to prove your basis.
Roth IRA Distributions
Roth contributions were made with after-tax dollars, so the contribution portion of any Roth withdrawal is always tax-free in Pennsylvania. Earnings follow the same age rule as a Traditional IRA: exempt after 59½, taxable before it, with cost recovery applied so contributions come out first.2Department of Revenue. Gross Compensation
Pennsylvania does not apply the federal five-year holding period. A distribution that is “non-qualified” federally because the account is too new can still be exempt from state tax if you’re past 59½. The reverse also holds: a federally qualified distribution taken before 59½ under a federal exception is still taxable in Pennsylvania.
Rollovers and Roth Conversions
Trustee-to-trustee rollovers and 60-day indirect rollovers are not taxable events in Pennsylvania.3Pennsylvania Department of Revenue. 2025 Pennsylvania Personal Income Tax Return Instructions (PA-40 IN) Watch one trap with indirect rollovers. If federal income tax is withheld from the check, you have to replace that withheld amount with your own money when you deposit the rollover into the new IRA. Fail to make up the difference, and the withheld portion becomes a taxable distribution for state purposes.
Converting a Traditional IRA to a Roth IRA is not taxable in Pennsylvania. This is one of the largest gaps between federal and state treatment. Federally, the pre-tax balance you convert is income in the year of conversion. Pennsylvania taxes none of it.5Department of Revenue. Taxability of Roth IRAs According to PA Income Tax Rules
On a partial conversion, basis is allocated pro-rata between the converted amount and the remaining balance. If any part of the conversion doesn’t make it into the Roth (federal withholding is the usual culprit), that leftover portion becomes taxable in Pennsylvania. If you want a fully tax-free conversion at the state level, move the entire amount.
Inherited IRAs
Distributions paid to a beneficiary because of the account holder’s death are exempt from Pennsylvania personal income tax. The PA-40 instructions list death distributions (1099-R Codes 3 and 4) as generally not taxable for state purposes.3Pennsylvania Department of Revenue. 2025 Pennsylvania Personal Income Tax Return Instructions (PA-40 IN) A beneficiary drawing down an inherited IRA under the federal 10-year rule owes no state income tax on those distributions, regardless of the beneficiary’s own age.
Inherited IRAs are not free of state tax altogether. Pennsylvania imposes a separate inheritance tax on the account value at death, with rates set by the beneficiary’s relationship to the decedent:6Department of Revenue. Inheritance Tax
- Surviving spouse: 0%
- Children and direct descendants: 4.5%
- Siblings: 12%
- Other heirs: 15% (charities and government entities exempt)
A surviving spouse pays neither income tax nor inheritance tax. A child pays no income tax on the distributions but owes 4.5% inheritance tax on the account’s value.
Local Earned Income Tax
Pennsylvania municipalities levy their own earned income tax at rates that vary by jurisdiction. Qualifying retirement distributions are not subject to it.7PENNSYLVANIA MUNICIPAL RETIREMENT SYSTEM. Taxes Under the Act 32 procedure manual, distributions from eligible retirement plans taken after retirement age are never treated as earned income for local purposes.8DCED. Act 32 of 2008 Policy and Procedure Manual
Early retirement incentive payments are the exception. A lump-sum payment offered to encourage early separation is treated as earned income in the year received and may be subject to local tax, even if it’s paired with an otherwise exempt IRA distribution.
Paying the Tax on a Taxable Distribution
If a distribution is taxable and your custodian doesn’t withhold Pennsylvania tax, you may owe estimated tax. The state requires quarterly estimated payments when income not subject to withholding tops $11,000 for the year across all sources.9Pennsylvania Department of Revenue. 2025 Instructions for Estimating PA Personal Income Tax Due dates are April 15, June 15, September 15, and January 15 of the following year. Each installment covers 25% of the estimated annual tax, and paying at least 90% of the actual tax owed per period avoids the underpayment penalty.
Miss a payment and two things happen. A 5% underpayment penalty applies to any balance unpaid after the return’s original due date, and interest accrues daily at a rate set annually by the U.S. Treasury.10Department of Revenue. Income Subject to Tax Withholding; Estimated Payments; Penalties, Interest and Other Additions Filing late adds a separate 5%-per-month penalty on unpaid tax, capped at 25%. The simpler path is to ask your IRA custodian to withhold Pennsylvania tax at the time of the distribution, which takes the estimated payment obligation off the table.