California’s default state tax withholding on IRA distributions is roughly 1% of a lump-sum withdrawal, which almost never matches what you actually owe. The state taxes traditional IRA money as ordinary income at rates that reach 13.3%, so leaving the default in place usually means a shortfall at filing time. You can adjust or waive California withholding on IRA distributions by filing Form DE 4P with your custodian, and you can close any remaining gap with quarterly estimated payments.
What the Default Withholding Actually Is
When you take money from a traditional IRA, your custodian must withhold California income tax unless you tell them otherwise.1Employment Development Department. DE 4P Withholding Certificate for Pension or Annuity Payments
For a non-periodic distribution (a one-time or lump-sum withdrawal), the California default is 10% of whatever federal tax is withheld. Because the federal default on non-periodic IRA distributions is 10% of the gross amount, the California piece works out to about 1% of the total.2Internal Revenue Service. Pensions and Annuity Withholding On a $50,000 withdrawal, that means $5,000 goes to federal and $500 to California.
For periodic payments spread over more than one year, the custodian uses California’s withholding schedules based on your filing status and allowances. If you haven’t filed a certificate, they apply default assumptions from the state tables.
How to Change or Waive California Withholding
You control the withholding, including opting out entirely. The form is EDD Form DE 4P, Withholding Certificate for Pension or Annuity Payments, and you submit it to your IRA custodian rather than the Franchise Tax Board.1Employment Development Department. DE 4P Withholding Certificate for Pension or Annuity Payments
The DE 4P offers four choices:
- Line 1 opts out of California withholding entirely.
- Line 2 sets a filing status and number of allowances, and the custodian applies the state schedules.
- Line 3 adds a flat dollar amount on top of the line 2 calculation.
- Line 4 sets a flat dollar amount per payment, ignoring the allowance calculation.
The form has no straight percentage option. If you want withholding equal to a fixed share of your distribution, calculate the dollars and put that on line 4. Get the form to your custodian before the distribution runs. One caveat from the form itself: your custodian is not required to honor the extra amount you request on line 3. If they decline, the DE 4P suggests claiming single status with zero allowances to maximize withholding, and covering any remaining shortfall with estimated payments.1Employment Development Department. DE 4P Withholding Certificate for Pension or Annuity Payments
Distributions That Aren’t Subject to California Withholding
Some common IRA transactions don’t trigger California withholding at all.
Direct Rollovers
A trustee-to-trustee transfer from your IRA to another retirement account isn’t a taxable distribution, so neither federal nor California withholding applies.3Internal Revenue Service. Topic No. 413, Rollovers From Retirement Plans This only covers direct transfers. If the check comes to you and you redeposit it within 60 days, the custodian still withholds on the initial distribution.
Nonresidents
If you live outside California, the state can’t tax your IRA distributions. Federal law bars states from taxing retirement income paid to nonresidents.4Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income The Franchise Tax Board confirms that California does not tax IRA distributions or qualified pension plans of a nonresident.5Franchise Tax Board. FTB Pub. 1100 – Taxation of Nonresidents and Individuals Who Change Residency If you’ve moved out of state, update your address with the custodian so they stop withholding.
Qualified Roth Distributions
Qualified Roth IRA distributions are tax-free at both the federal and California level.6Internal Revenue Service. Roth IRAs California conforms to the federal Roth rules under Revenue and Taxation Code Section 17501.7Franchise Tax Board. Legal Ruling 1998-4 To qualify, you must be at least 59½ (or disabled, or the account owner is deceased) and the account must have been open at least five years. Non-qualified Roth withdrawals of earnings are taxable and subject to withholding like any other distribution.
Qualified Charitable Distributions
If you’re 70½ or older, you can send up to $111,000 per year directly from your IRA to a qualified charity. These qualified charitable distributions are excluded from taxable income and count toward your required minimum distribution, so no California withholding applies. Custodians code them with Code Y on Form 1099-R.8Internal Revenue Service. Instructions for Forms 1099-R and 5498
Why the Default Almost Never Covers What You Owe
California taxes IRA distributions as ordinary income. The state’s marginal rates run through nine brackets from 1% to 12.3%, with an additional 1% mental health services surcharge on income above $1 million pushing the effective top rate to 13.3%.
For a married couple filing jointly in 2026, the 9.3% bracket begins at $145,449 of taxable income. A $100,000 distribution that lands in that bracket could carry $8,000 or more of California tax, while the 1% default withholding would send only about $1,000 to Sacramento. The rest has to come from either higher withholding on the DE 4P or from quarterly estimated payments.
Avoiding the Underpayment Penalty
If withholding and credits fall short, the Franchise Tax Board charges an underpayment penalty calculated as interest on the shortfall from each installment’s due date.9Franchise Tax Board. Common Penalties and Fees You avoid it by meeting one of California’s safe harbors:
- General rule: pay at least 90% of the current year’s tax or 100% of the prior year’s tax, whichever is smaller.
- If your AGI is above $150,000 (or $75,000 if married filing separately): 90% of the current year or 110% of the prior year.
- If your AGI is $1,000,000 or more (or $500,000 if married filing separately): 90% of the current year. The prior-year safe harbor is not available.
When withholding won’t meet those thresholds, make quarterly estimated payments on Form 540-ES. California’s installment schedule is not the federal one: 30% of the required annual payment is due April 15, 40% June 15, nothing with the third installment, and 30% by January 15 of the following year.11Franchise Tax Board. 2025 Instructions for Form 540-ES Estimated Tax for Individuals You can pay through the FTB’s Web Pay portal, by electronic funds withdrawal through tax software, by credit card, or by check. Once you’ve made a single estimated or extension payment above $20,000, or filed a return with total tax liability above $80,000, all future payments must be electronic.
Early Distribution Penalty
Pulling money from a traditional IRA before 59½ triggers an extra penalty at both the federal and state level. Federal adds 10%. California adds another 2.5% on top.12Franchise Tax Board. Early Distributions For a SIMPLE IRA in the first two years of participation, California’s penalty rises to 6%.
California honors the same exceptions as the federal rules, including disability, death, medical expenses above 7.5% of AGI, up to $10,000 for a qualified first-time home purchase, and up to $5,000 per child for a qualified birth or adoption.13Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Those exceptions kill the penalty, not the tax. The distribution is still California ordinary income and still subject to withholding.
RMDs and Inherited IRAs
Starting the year you turn 73, required minimum distributions from a traditional IRA are mandatory.14Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs They’re fully taxable in California and get the same default withholding as any other distribution. Your first RMD can be pushed to April 1 of the following year, but taking two RMDs in a single calendar year can bump you into a higher bracket. Many retirees leave 1% withholding on their annual RMDs and are surprised by the balance due in April. A DE 4P set to your actual marginal rate, or a schedule of estimated payments, prevents that.
If you inherit an IRA as a non-spouse beneficiary and the original owner died in 2020 or later, the account generally has to be emptied within 10 years.15Internal Revenue Service. Retirement Topics – Beneficiary Every withdrawal is taxable California income with withholding applied as usual. Spreading distributions across the full 10 years keeps yearly income lower and avoids the bracket spikes that come with taking a big slug at once. Eligible designated beneficiaries, including surviving spouses, minor children, disabled individuals, and beneficiaries not more than 10 years younger than the decedent, may still use a life-expectancy method.
Reporting the Withholding at Tax Time
After a distribution, your custodian sends Form 1099-R. Box 1 shows the gross distribution and Box 4 shows any federal tax withheld.8Internal Revenue Service. Instructions for Forms 1099-R and 5498 Box 7 carries a distribution code that identifies the type of withdrawal, such as Code 1 for an early distribution with no exception, Code 7 for a normal distribution after 59½, or Code Q for a qualified Roth distribution.
California withholding shows up in Box 14 of the same 1099-R. On your 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 an FTB Form 592-B for nonresident or backup withholding, that withholding gets claimed on the return as well.16Franchise Tax Board. 2025 Form 592-B Resident and Nonresident Withholding Tax Statement With Instructions Attach the withholding statements so the FTB can match the credit to what your custodian reported.