California: state tax on early 401(k) and IRA withdrawals
Before 59½, California adds its own 2.5 % tax to every early dollar that the IRS already charges 10 %, and then taxes the payout as ordinary income.
California: state tax on this withdrawal
$1,000
California taxes the withdrawal as income and adds its own 2.5 % tax before 59½ (form FTB 3805P), on top of the federal 10 %.
| Excluded by the state | $0 |
| Taxed by the state | $40,000 |
| Rate used | type your rate |
| State early-distribution tax | $1,000 |
Worked out by Radif Partners · How we calculate · rules read on the California revenue department site, tax year 2025
California is one of the rare states with its own penalty on early retirement money: the part of a 401(k), 403(b) or IRA distribution taken before 59½ and included in California income owes an additional 2.5 % tax, figured on form FTB 3805P. It comes on top of the federal 10 %, so a dollar that fits no exception carries 12.5 % of extra tax before income tax. California generally follows the federal exceptions but, in the words of the Franchise Tax Board, does not conform to all of them. A SIMPLE IRA emptied in the first two years of participation owes 6 % in California instead of 2.5 %. No age-based state exclusion exists for retirement payouts. Income tax follows the 2025 schedules (1 % to 12.3 %, plus 1 % on taxable income over $1 million, for a top rate of 13.3 %); the 2026 schedules were not published when we read the FTB site, so the calculator asks for your rate. On $25,000 taken early, the state surcharge alone is $625.
A second penalty, collected in Sacramento
Most states treat an early 401(k) or IRA payout as plain income and stop there. California goes one step further and mirrors the federal early-distribution tax at a lower rate. The FTB instructions for form 3805P say that the portion of an early distribution included in income "is subject to an additional 2½% tax", and that California and federal law are generally the same "except for the rate of tax assessed." The federal 10 % on your Form 5329 does not replace it: you pay both.
Take a 47-year-old who pulls $25,000 from a traditional IRA to cover a gap year, with no exception available. The IRS penalty is $2,500; California adds $625. Neither figure includes the income tax on the same money, which comes on top at federal and state level.
California surcharge on an IRA payout at 47
California: state tax on this withdrawal
$625
| Excluded by the state | $0 |
| Taxed by the state | $25,000 |
| Rate used | type your rate |
| State early-distribution tax | $625 |
Federal exceptions: close, not identical
The same sentence of the FTB instructions carries a warning: "California does not conform to all of the federal exceptions to the additional tax on early distributions." The form lists its own exception codes, and we have not compared them one by one with the IRS list, so this page does not claim which exceptions differ. What can be said is that the common FIRE routes, the rule of 55 and a 72(t) series of equal payments, are federal exceptions that California generally follows. Before relying on a less common one, check its code in the 3805P instructions for the year of the payout.
SIMPLE IRA: the first two years cost more
A SIMPLE IRA is the exception to the exception. Federal law raises the additional tax to 25 % on money taken within the first two years of participation, and California raises its own charge to 6 % for the same withdrawals. On $10,000 that is $3,100 of combined surcharges, before a cent of income tax. Waiting until the two-year window closes brings both back to their usual rates.
Income tax: 2025 schedules until the FTB publishes 2026
California has no exclusion for retirement payouts at any age, so the full taxable amount joins your other income. The latest schedules on the FTB site when we checked were those for 2025: rates from 1 % to 12.3 %, and the Behavioral Health Services Tax of 1 % on taxable income above $1 million. The 2026 tables were not out. The calculator therefore leaves the rate field for you: type the marginal rate from your last California return; left at zero, it counts the 2.5 % surcharge and nothing else.
Building a pre-59½ budget in California
For an early retiree living in the state, the cost gap between penalized and unpenalized money is wider than elsewhere: 12.5 % of surcharges on one side, zero on the other. That favors the sources no penalty touches in the bridge years: Roth contributions, a taxable brokerage account, a governmental 457(b), or the 401(k) of the employer you leave at 55. A conversion ladder started early keeps the IRA out of the penalty zone altogether. The state comparison page shows how far other states sit from this model.