Does Tennessee Tax 401(k) Withdrawals?
No. Tennessee has no state income tax on wages or retirement income, making it one of the best states for retirement from a tax standpoint. There is no state income tax in Tennessee, which means your 401(k) withdrawals, IRA distributions, and any retirement income are completely free of state income taxation. Only federal taxes apply.
Tennessee Retirement Income Tax Rules
Tennessee residents pay only federal taxes on retirement distributions. This makes Tennessee one of the most attractive states for retirement from a tax standpoint. Federal withholding of 20% applies to indirect rollovers, and ordinary income tax applies to traditional 401(k) distributions at your federal bracket.
When planning your 401(k) rollover or withdrawal in Tennessee, it is important to understand both state and federal tax obligations. Your total tax burden includes federal income taxes at your marginal bracket plus any applicable Tennessee state income tax.
Federal 401(k) Rollover Rules for Tennessee Residents
Regardless of what state you live in, the same federal rollover rules apply to all Americans:
- Direct Rollover: The safest method. Funds move directly from your old plan to the new IRA or 401(k) with no withholding and no 60-day deadline. This is the recommended approach for most people.
- Indirect Rollover: Your old plan sends you a check with 20% withheld for federal taxes. You must deposit the full original amount (including the withheld 20% from your own funds) into a new qualified account within 60 days or the IRS treats it as a taxable distribution.
- 60-Day Rule: Miss the 60-day window on an indirect rollover and the full amount becomes taxable income. If under age 59.5, a 10% early withdrawal penalty also applies.
- One Rollover Per Year: The IRS limits taxpayers to one indirect IRA-to-IRA rollover per 12-month period. Direct rollovers and plan-to-IRA rollovers are not subject to this limit.
- No Limit on Rollover Amount: There is no cap on the amount you can roll over from a 401(k) to an IRA. The full balance, regardless of size, can be transferred without tax consequences if done correctly.
Free Retirement Calculators for Tennessee Residents
Use these free educational tools to help understand your 401(k) rollover and retirement planning options:
- 401(k) Rollover Calculator — Compare staying in your old plan vs rolling to an IRA
- Early Withdrawal Penalty Calculator — Calculate the true cost of withdrawing before 59.5
- RMD Calculator 2026 — Required minimum distribution calculator
- Retirement Income Calculator — How long will your portfolio last?
- 401(k) Growth Calculator — Project your balance at retirement
- Traditional vs Roth IRA Calculator — Which is better for your situation?
- 403(b) Rollover Calculator — For educators and nonprofit employees
- Retirement Savings Gap Calculator — Are you on track?
Content updated April 2026. IRS rules and state tax rates are subject to change. Verify current rates at IRS.gov and your state revenue department website.