Yes, California does tax retirement income, and it taxes most of it as ordinary income at the state’s regular rates of 1% to 13.3%. The one large carve-out is Social Security, which the state does not tax at all. Pensions, 401(k) withdrawals, traditional IRA distributions, and payments from CalPERS or CalSTRS are all fully taxable at your marginal rate.
What California Doesn’t Tax
Social Security retirement, survivor, and disability benefits are fully exempt from California income tax.1California Tax Service Center. Special Circumstances It does not matter how much of your Social Security is taxable on your federal return; none of it counts toward California taxable income. You subtract the benefit amount from your federal adjusted gross income on Schedule CA when you file.
Both Tier 1 and Tier 2 Railroad Retirement benefits are also exempt. That’s broader than the federal rule, which only gives favorable treatment to the Social Security equivalent portion of Tier 1 and taxes Tier 2 like a private pension.2Franchise Tax Board. FTB Pub. 1001 – Supplemental Guidelines to California Adjustments
Two other categories fall outside California’s reach:
- Qualified Roth IRA distributions. If the account has been open at least five years and you are 59½, disabled, or a beneficiary after the owner’s death, withdrawals are tax-free at the state level just as they are federally. Non-qualified withdrawals of earnings remain taxable as ordinary income.
- VA disability compensation. Payments from the Department of Veterans Affairs are exempt from both federal and California income tax, and you do not report them on your state return.3Internal Revenue Service. Veterans Tax Information and Services
What California Taxes as Ordinary Income
Almost every other form of retirement income is fully taxable at California’s regular rates. That includes:
- Pensions from the California Public Employees’ Retirement System (CalPERS) and the State Teachers’ Retirement System (CalSTRS)
- Private employer pensions
- 401(k) and 403(b) distributions
- Traditional IRA and SEP IRA withdrawals
- 457 plan distributions
- Military retirement pay
When you withdraw from any of these, the distribution is added to your other income for the year and taxed at your marginal rate. California generally follows the federal rules for timing and reporting, so the taxable amount from your federal return flows to your state return as a starting point.
Residency, not where the money was earned, is what triggers California tax. If you retired in another state and later moved to California, the pension you earned elsewhere becomes taxable by California from the date you establish residency.4Franchise Tax Board. FTB Pub. 1100 – Taxation of Nonresidents and Individuals Who Change Residency
A Break for Military Retirees Starting in 2025
For tax years beginning on or after January 1, 2025, and before January 1, 2030, qualifying military retirees can exclude up to $20,000 of federal military retirement pay or Defense Department Survivor Benefit Plan annuity payments from California gross income.5Franchise Tax Board. Military Anything above $20,000 is taxed as ordinary income.
The Rates That Apply
California uses the same progressive brackets for retirement income that it uses for wages. For the 2025 tax year, single filer rates start at 1% on the first $11,079 of taxable income and climb through several brackets to a regular top rate of 12.3% on income above $742,953.6Franchise Tax Board. 2025 California Tax Rate Schedules An additional 1% Mental Health Services Tax applies to taxable income above $1 million, making the effective top rate 13.3%.
Because everything is stacked on one return, a large pension or 401(k) withdrawal can push part-time wages or investment income into a higher bracket. A retiree drawing $60,000 from CalPERS and $25,000 from a 401(k) has both amounts added to any other income before the marginal rate is applied.
Extra Cost If You Withdraw Before 59½
Early withdrawals from most retirement accounts trigger a 10% federal additional tax and a separate 2.5% California penalty, for a combined 12.5% before regular income tax on the distribution.7Franchise Tax Board. Early Distributions SIMPLE IRAs carry steeper penalties in the first two years of participation: 25% federal and 6% state.
California generally follows the federal exceptions that eliminate the penalty, such as separation from service at 55 or older, substantially equal periodic payments, total disability, unreimbursed medical expenses above 7.5% of AGI, and qualified birth or adoption expenses up to $5,000.8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions If the federal exception applies, the state penalty generally does too.
Required Minimum Distributions Are Taxable
Once you reach age 73, federal law requires minimum withdrawals from traditional IRAs, 401(k)s, 403(b)s, and SEP IRAs.9Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) Roth IRAs are the exception; they carry no RMD during the owner’s lifetime. Your first RMD is due by April 1 of the year after you turn 73, and each one after that is due by December 31.
Every RMD is ordinary income on your California return. Missing one triggers a 25% federal excise tax on the amount you should have withdrawn, which drops to 10% if you correct it within two years. California does not add its own penalty for a missed RMD, but the distribution itself, once taken, becomes taxable at the state level.
Some retirees start withdrawals before 73, spread Roth conversions across years, or use qualified charitable distributions directly from an IRA to keep RMD-driven income from lifting them into a higher bracket.
If You Move Out of California
Federal law bars states from taxing the retirement income of non-residents. Under 4 U.S.C. Section 114, once you establish residency in another state, California cannot tax your pension, IRA, 401(k), 403(b), 457, or government pension distributions, as long as they are paid as substantially equal periodic payments over your life expectancy or a period of at least 10 years.10Office of the Law Revision Counsel. 4 US Code 114 – Limitation on State Income Taxation of Certain Pension Income Military retired pay is specifically covered.
The protection depends on genuinely leaving. California defines a resident as anyone in the state for other than a temporary or transitory purpose, and the Franchise Tax Board looks closely at moves that appear designed only to avoid tax.11Legal Information Institute. California Code of Regulations Title 18 Section 17014 – Who Are Residents and Nonresidents Keeping a California home, driver’s license, or voter registration after a move to a no-tax state can leave you classified as a continuing resident.
Paying the Tax Through the Year
Retirement income often arrives without automatic California withholding. Pension administrators and plan custodians can withhold state tax from distributions if you ask them to. If they don’t, or if what they withhold isn’t enough, you may need to make quarterly estimated payments.
California requires estimated payments if you expect to owe at least $500 for the year ($250 if married filing separately) and your withholding and credits will cover less than 90% of your current-year tax or 100% of your prior-year tax.12Franchise Tax Board. Estimated Tax Payments Payments are due in April, June, September, and January. Setting up withholding on your largest distribution source is usually the simpler route; estimated payments fill in the rest.