New Jersey: state tax on early 401(k) and IRA withdrawals
New Jersey gives no retirement exclusion before 62, and after 62 it disappears once New Jersey income passes $150,000; a 401(k) is taxed in full because its deferrals were never taxed there.
New Jersey: state tax on this withdrawal
$0
New Jersey has no exclusion before 62; from 62, up to $75,000 (single) or $100,000 (joint) if New Jersey income stays at $100,000 or less, phased out up to $150,000.
| 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 New Jersey revenue department site, tax year 2025
New Jersey adds no state penalty to an early withdrawal, but it offers early retirees nothing either: the pension and retirement exclusion requires being 62 or older (or blind or disabled) on the last day of the tax year. From 62, with New Jersey income of $100,000 or less, the maximum is $100,000 for a joint return, $75,000 for single and head of household filers and $50,000 for married filing separately. Between $100,001 and $150,000 the exclusion shrinks to a share of pension income, and above $150,000 it is gone. What you are taxed on also depends on the account. New Jersey never exempted 401(k) deferrals, so 401(k) payouts are generally fully taxable, while contributions to a 403(b), a 457 or an IRA were generally taxed going in and come back out tax free. The latest schedules are those for 2025, topping at 10.75 % on income of $1 million and over, so the calculator asks for your rate. At 60, a $52,000 401(k) payout is taxed in full: $52,000.
A cliff at $150,000, and a gate at 62
New Jersey's exclusion has two conditions, and both are strict. The first is age: you, or your spouse on a joint return, must be 62 or older, or blind or disabled, on the last day of the tax year. The second is income: the instructions require New Jersey income on line 27 of $150,000 or less. A FIRE couple who retire at 50 wait twelve years for the age condition, and a large 401(k) withdrawal in a single year can break the income test even after 62.
| New Jersey income (line 27) | Married filing jointly | Single or head of household | Married filing separately |
|---|---|---|---|
| $100,000 or less | $100,000 | $75,000 | $50,000 |
| $100,001 to $125,000 | 50 % of pension income | 37.5 % of pension income | 25 % of pension income |
| $125,001 to $150,000 | 25 % of pension income | 18.75 % of pension income | 12.5 % of pension income |
| Over $150,000 | none | none | none |
On a joint return, only the pension income of the spouse who is 62 or older can be excluded. A couple aged 63 and 59 can therefore exclude the older spouse's IRA withdrawals, while the younger spouse's stay taxable.
Why the 401(k) is the expensive account
New Jersey has its own rules on what was taxed going in. 401(k) deferrals were not taxed by the state when made, so a 401(k) distribution is "generally fully taxable." Employee contributions to a 403(b), a 457, a SEP, the federal Thrift Savings Plan or any plan other than a 401(k) were taxed by New Jersey when made, and they are recovered tax free. IRA contributions were generally taxed when made too; only the earnings and amounts rolled over tax free become taxable on withdrawal, worked out on Worksheet C of the instructions.
For someone retiring early in the state, that turns the usual order around. A 403(b) or IRA with a large New Jersey basis can fund the years before 62 at a lower state cost than a 401(k) of the same size. The calculator below does not know your basis and taxes the full amount, which matches a 401(k).
New Jersey at 60: a 401(k) payout
New Jersey: state tax on this withdrawal
$0
| Excluded by the state | $0 |
| Taxed by the state | $52,000 |
| Rate used | type your rate |
| State early-distribution tax | $0 |
Contributory pensions: the Three-Year Rule
For pension plans to which you contributed, the instructions describe a Three-Year Rule: if your own contributions will come back to you within 36 months, payments are not reported as income until those contributions have been recovered. It matters mostly for public employees with a contributory pension, less for 401(k) and IRA savers.
The 2025 rates and what to type
The New Jersey schedules we read are those for 2025; they end at 10.75 % on income of $1 million and over, and we have not extracted the lower brackets. Type your marginal rate in the calculator. The federal 10 % on early money is a separate charge, explained on the early 401(k) withdrawal calculator; the New York page shows a neighbor whose break starts at 59½.