State taxes on conversions

The general rule

A Roth conversion is ordinary income. Almost every state that levies an income tax treats it that way, which means the conversion appears in your state taxable income for the year and is taxed at your state's rate on top of the federal bill.

There is no state-level equivalent of the five-year clock and no state penalty analogous to the federal 10%, because those are federal constructs. The state consequence is simpler and lands entirely in the year you convert: more income, more state tax.

What a state rate does to the arithmetic

Take the standard example on this site — a 40-year-old single filer with $500,000 pre-tax and no other income, converting to the top of the 12% bracket. The engine computes $5,800 of federal tax on the first conversion of $66,500. Adding a flat state rate:

The rates in the first column are illustrative, spanning roughly the real range from no income tax to the higher end of state top rates. They are not attributed to any state and are applied as flat rates for clarity — most states have brackets of their own, so your actual figure depends on where the conversion lands in them.

Over five years of laddering, the example converts $332,500 and pays $29,000 in federal tax. At a 5% state rate that same ladder carries roughly $16,625 of state tax — money that has to come out of the same bridge fund as everything else, and which the calculator's solvency check does not know about.

States with no broad income tax

Nine states do not levy a broad-based personal income tax, so a conversion generally carries no state cost there:

• Alaska, Florida, Nevada, South Dakota, Texas, and Wyoming — no personal income tax
• Washington — taxes certain capital gains, but not ordinary income, so conversions are untaxed
• Tennessee and New Hampshire — no tax on wages or ordinary income; New Hampshire's interest and dividends tax has been phased out

Separately, some states with income taxes exempt retirement income broadly enough that a conversion is untaxed or lightly taxed — Illinois and Pennsylvania are the examples usually cited. Whether a conversion specifically qualifies for a retirement income exclusion is a state-by-state question and not always the same answer as for a distribution, which is exactly the kind of detail worth confirming with your state's revenue department rather than inferring.

Moving, and the honest version of that advice

Conversion income is generally taxed by the state you live in when you convert. So the sequence matters: establish residency in a no-tax state, then convert, and the state cost is generally zero. Convert first and then move, and the state you left generally taxes it.

For someone laddering several hundred thousand dollars, that ordering can be worth five figures. Which is why it deserves a caveat rather than an exclamation point:

• Residency has to be real. States with high rates scrutinize departures, and the tests look at where you actually live — days present, home, licence, registrations, professional relationships, where your family is. A move that exists mainly on a tax return is the kind of thing that gets reassessed years later, with interest.
• Part-year rules vary. Move mid-year and the sourcing of income recognized around the move date is genuinely technical. This is a question for a CPA in the year you move, not a rule of thumb.
• The tax saving is a timing argument, not a reason to move. If you were already planning to relocate, converting after the move rather than before is close to free money. If you were not, uprooting your life to save one bracket is a poor trade.

Why the calculator leaves this out

Modelling state tax properly would mean maintaining brackets, standard deductions, retirement income exclusions, and conversion-specific treatment for every state, revised annually. Getting that wrong quietly is worse than not offering it: a figure that looks authoritative and is stale by a year is more damaging than an omission the disclaimer names plainly.

So the calculator computes federal tax and the ACA premium tax credit consequence, and stops. The practical way to use it if you are in a taxing state:

1. Read the tool's true marginal rate as a floor.
2. Add your own state's marginal rate on the conversion amount to get closer to the real figure.
3. Add the state tax to your bridge fund requirement, since the solvency check does not include it.

Step two is now partly automatic. The ACA subsidy calculator does carry a state component in its stacked marginal rate, for the 23 states where a single verifiable rate exists — the 9 with no broad income tax, where it correctly shows nothing, and the 14 that levy a flat rate. For graduated-rate states it reports the state component as not modeled rather than guessing, which is the same refusal described above and for the same reason. Two limits carry over even where a rate does appear: it is the state's ordinary-income rate, so retirement-income exclusions and state treatment of capital gains are still absent, and a returned rate is therefore an upper bound rather than your bill.

One thing the omission does not distort: the shape of the ACA subsidy cliff. That is a federal calculation on federal MAGI, so the cliff sits in the same place regardless of your state, and the cliff guide holds everywhere.

Common questions

Do you pay state tax on a Roth conversion?

In most states, yes. A Roth conversion is ordinary income for state purposes in almost every state that levies an income tax, so it is taxed on top of the federal bill. Nine states have no broad income tax at all, and several others exempt some or all retirement income — but the general rule is that a conversion costs you federal tax plus state tax in the year you convert.

Which states do not tax Roth conversions?

States with no broad-based personal income tax do not tax conversions: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Washington taxes certain capital gains but not ordinary income, and New Hampshire finished phasing out its interest and dividends tax. Separately, some states with income taxes exempt retirement income in ways that can reduce or eliminate the tax on a conversion — Illinois and Pennsylvania are the commonly cited examples.

Should you move to a no-tax state before doing Roth conversions?

It can save a substantial amount if you were already planning to move, since conversion income is generally taxed by your state of residence at the time of the conversion. But moving is only effective if you genuinely establish residency — states with high rates audit departures, and a move made on paper while your actual life stays behind is the kind of thing that gets reassessed years later. The tax saving should be a reason to time a move you already wanted, not a reason to make one.

Does this calculator include state tax?

No. The calculator computes federal income tax and the ACA premium tax credit consequence of each conversion, and deliberately excludes state income tax. State rules vary too much to model responsibly — brackets, retirement income exclusions, and treatment of conversions all differ. Treat the calculator output as a floor and add your own state rate on top.

What happens if you convert and then move states?

Conversion income is generally sourced to where you lived when you converted, so a conversion completed in a high-tax state before moving is taxed by that state. The reverse also holds: establish residency in a no-tax state first, then convert, and there is generally no state tax. Part-year residency rules and the specifics of when income is recognized vary by state, which makes this a question for a CPA in the year you actually move.

Model the federal cost · Add your state to the marginal rate · What else the model omits · Bridge fund planning