Colorado: state tax on early 401(k) and IRA withdrawals
Colorado's pension and annuity subtraction opens at 55, earlier than in most states, but it skips any 401(k) or IRA payout that the IRS treats as premature.
Colorado: state tax on this withdrawal
$0
Colorado subtracts up to $20,000 a person from 55 to 64 and $24,000 from 65, but not a distribution the IRS treats as premature.
| Excluded by the state | $0 |
| Taxed by the state | $40,000 |
| Rate used | type your rate |
| State early-distribution tax | $0 |
Worked out by Radif Partners · How we calculate · rules read on the Colorado revenue department site, tax year 2025
Colorado lets residents age 55 or older subtract up to $20,000 a year of pension and annuity income, IRA and 401(k) payouts included, and up to $24,000 from age 65. Each spouse on a joint return computes the subtraction separately, so a couple both past 55 can remove up to $40,000. The catch is the federal label: distributions "deemed to be premature for federal income tax purposes do not qualify", while those not subject to the federal penalty may. A 57-year-old drawing $30,000 from the 401(k) of an employer left at 55, free of the federal 10 % under the rule of 55, can subtract $20,000 and is taxed on $10,000. The same sum from an IRA at 57, penalized by the IRS, gets no subtraction. Under 55, only pension income received as a death benefit qualifies. The rate was 4.4 % for 2025; the Colorado page we read did not yet list 2026, so the calculator asks for your rate.
Fifty-five, with a federal condition attached
Colorado's subtraction is one of the few state breaks that starts at the same age as the federal rule of 55. The Department of Revenue says it "is generally allowed only to individuals age 55 or older" and limits it to $20,000 a year, or $24,000 for those 65 or older. It covers pension and annuity income included in federal taxable income, which reaches IRA and 401(k)-type distributions.
The wording that matters for an early retiree is about IRAs and self-employed plans: distributions "deemed to be premature for federal income tax purposes do not qualify", and "the subtraction may be claimed for these distributions that are not subject to the federal penalty." In other words, Colorado lets the IRS decide. A payout covered by a federal exception can come off the Colorado return; a payout that owes the federal 10 % stays fully in it.
Colorado at 57: a rule of 55 payout
Colorado: state tax on this withdrawal
$0
| Excluded by the state | $20,000 |
| Taxed by the state | $10,000 |
| Rate used | type your rate |
| State early-distribution tax | $0 |
The same $30,000, two Colorado results
| Payout at 57 | Federal 10 % | Colorado subtraction | Left in Colorado income |
|---|---|---|---|
| 401(k) of the employer left at 55 | no | $20,000 | $10,000 |
| Traditional IRA, no exception | yes | $0 | $30,000 |
At the 2025 rate of 4.4 %, the gap between the two lines is worth $880 of Colorado tax a year, on top of the $3,000 federal penalty the IRA payout carries. A 72(t) series from the IRA is another way to keep the federal label clean after 55.
Married filers: two subtractions, one per spouse
For joint returns the subtraction is computed separately for each spouse, on that spouse's own pension and annuity income. A couple who are 58 and 56, each drawing $20,000 from their own penalty-free plan, can remove $40,000 together. If only one spouse has retirement income, only that spouse's $20,000 can be used. Age is measured at the end of the tax year, and the higher $24,000 amount applies from the year a spouse is 65.
Before 55, and the 2026 rate
Under 55 the subtraction is limited to pension and annuity income received as a death benefit, so a FIRE retiree at 50 has no Colorado break on plan or IRA money. As for the rate: the individual income tax guide shows 4.4 % for 2025 and 4.25 % for 2024, and did not list 2026 when we read it. Type your rate in the calculator once the 2026 figure is known, and compare with the neighbors on the state overview.