Updated October 4, 2026. Quick answer: Yes. Alabama taxes traditional 401(k) and IRA withdrawals. The 2025 booklet lists “fully or partially taxable pensions, annuities, IRA distributions”, and says “unless specifically excluded by law, your pension payments are fully taxable”. The exclusions it lists are for specific government and military systems. At 65 or older, the 2025 Schedule RS also lets each taxpayer exclude up to $6,000 of retirement income taxable to Alabama, which includes these withdrawals.
State retirement-income forms, line by line: Alabama Schedule RS.
Inherited an IRA? What the state’s own documents say about taxing those withdrawals: Alabama tax on inherited IRA withdrawals.
Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does Alabama tax 403(b) and 457(b) withdrawals.
Withdrawing from an IRA or 401(k)? Whether the state withholds tax from it, from its own documents: Alabama tax withholding on IRA and 401(k) withdrawals.
Inheriting from, or planning for, someone in this state? Whether the state has an inheritance tax, from its own tax documents: Does Alabama have an inheritance tax?.
Contributing to an HSA? How the state taxes it, from its own tax documents: Does Alabama tax HSA contributions?.
What Alabama does with 401(k) and IRA withdrawals
The exclusions the booklet lists include “Military retirement pay” and “State of Alabama Teachers’ Retirement System benefits”. The booklet says some pension payments have an unrecovered after-tax cost, and gives a worksheet for the taxable part.
The 2025 Schedule RS carries a retirement exclusion. If the taxpayer is “65 or older and receives taxable retirement” income, “each taxpayer is eligible up to $6,000 not to exceed the Retirement Income Taxable to Alabama”. The booklet sends IRA and 401(k) distributions to Schedule RS, so they count toward that total. A spouse who is 65 or older claims a separate exclusion against their own distributions.
| Item | What the documents say |
|---|---|
| Treatment | Taxable; the listed exclusions cover specific public, military and defined-benefit systems, not a private 401(k) or IRA; at 65 or older, up to $6,000 per taxpayer is excluded on Schedule RS |
| State rates | 2%, 4% and 5%; 5% on taxable income over $3,000 (single) or $6,000 (joint) |
| Source | Alabama Department of Revenue, 2025 Form 40 instructions, 2025 Schedule RS and rate FAQ |
A $40,000 withdrawal
Under 65, all $40,000 of a traditional withdrawal is Alabama income. At 65 or older, the Schedule RS exclusion takes off up to $6,000, leaving $34,000 (computed as $40,000 minus $6,000) of that taxpayer’s withdrawal as Alabama income. The tax it adds depends on your other income, because the rate rises from 2% to 5% as taxable income grows.
Rate schedule
The rate FAQ prints the schedule: “5% All taxable income over $3,000”. Below that, 2% applies to the first $500 and 4% to the next $2,500 for a single filer.
What changes in 2026
No 2026 change appears in the documents read for this page; the rate FAQ is undated.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal tax on these withdrawals in Publication 590-B, Distributions from Individual Retirement Arrangements and Publication 575, Pension and Annuity Income.
Related: whether Alabama taxes pensions, how Alabama taxes retirement income, whether Alabama taxes Roth conversions, and the state-by-state table of 401(k) and IRA withdrawal tax.
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Answer againSources
- Instructions for Form 40 (Resident Individual Income Tax Return) booklet, Tax Year 2025: https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40bk.pdf
- What is Alabama’s Individual Income Tax Rate? (FAQ): https://www.revenue.alabama.gov/faqs/what-is-alabamas-individual-income-tax-rate/
- Income Exempt from Alabama Income Taxation: https://www.revenue.alabama.gov/individual-corporate/income-exempt-from-alabama-income-taxation/
Sources: the primary documents linked above, read on October 4, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.