Updated October 4, 2026. Quick answer: Yes. Montana taxes 401(k) and IRA withdrawals as ordinary income, and the 2025 instructions print no general retirement-income subtraction. The state’s overview of Form 2 changes lists the “partial pension, annuity, and IRA exemption” among subtractions that were “repealed as of January 1, 2024”.
More state retirement-income schedules, line by line: Montana Form 2 retirement lines.
Inherited an IRA? What the state’s own documents say about taxing those withdrawals: Montana tax on inherited IRA withdrawals.
Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does Montana 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: Montana 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 Montana have an inheritance tax?.
What Montana does with 401(k) and IRA withdrawals
The instructions say the calculation “on your Montana tax return begins with your federal adjusted gross income”. No sentence in the documents says in words that 401(k) and IRA withdrawals are taxed, so the answer rests on that starting point and on the repeal. The retirement items printed are a railroad exemption (“Montana does not tax federal Railroad Retirement” benefits), a subtraction for working military retirees, and the flat age-65 subtraction.
| Item | What the documents say |
|---|---|
| Treatment | Taxable; the partial pension, annuity and IRA exemption was repealed from 2024 |
| State rates, 2025 | 4.7% below $21,100 (single), 5.9% at or above |
| State rates, 2026 | 4.7% below $47,500 (single), 5.65% at or above |
| Age 65 or older | A flat $5,660 subtraction, not specific to retirement accounts |
| Source | Montana Department of Revenue, 2025 Form 2 instructions and Form 2 changes overview |
A $40,000 withdrawal
All $40,000 of a traditional withdrawal is part of Montana income. If $40,000 were a single filer’s whole taxable income, the 2025 table (5.9% less $253) gives $2,107 (computed as 5.9% of $40,000 minus $253), before any deduction or credit that lowers it.
What changes in 2026
For 2026 the instructions print a lower top rate of 5.65% above $47,500 (single) after House Bill 337, and no change to the retirement-income treatment.
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 Montana taxes pensions, how Montana taxes retirement income, whether Montana taxes Roth conversions, and the state-by-state table of 401(k) and IRA withdrawal tax.
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Answer againSources
- 2025 Montana Form 2 Individual Income Tax Instructions: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2025_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf
- Overview of Changes to Form 2 (income tax simplification; lists repealed subtractions): https://revenue.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2/Form-2-Changes.pdf
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.