Updated October 4, 2026. Quick answer: Yes. Vermont taxes 401(k) and IRA withdrawals as ordinary income. The retirement income exemption covers Social Security or income from a “retirement system of the U.S. government or a state government”, up to $10,000, so private 401(k) and IRA accounts are not named as eligible.
State retirement-income forms, line by line: Vermont Schedule IN-112.
Inherited an IRA? What the state’s own documents say about taxing those withdrawals: Vermont tax on inherited IRA withdrawals.
Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does Vermont 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: Vermont 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 Vermont have an inheritance tax?.
What Vermont does with 401(k) and IRA withdrawals
The booklet says the exemption “only applies to benefits that are based on earnings not covered”. Military retirement is separate: “all military retirement and survivor benefit income is exempt” under the booklet’s income limits, and railroad retirement is “taxable at the federal level, but exempt from Vermont income tax”. The documents do not separately discuss Roth distributions.
| Item | What the documents say |
|---|---|
| Treatment | Taxable; the exemption is for government retirement systems or Social Security |
| Retirement system exemption | Up to $10,000, phased out between $55,000 and $65,000 of AGI (single) and between $70,000 and $80,000 (joint) |
| State rates, 2025 | 3.35%, 6.60%, 7.60% and 8.75% |
| Source | Vermont Department of Taxes, 2025 income tax booklet and rate schedules; 32 V.S.A. 5830e |
A $40,000 withdrawal
All $40,000 of a traditional withdrawal is Vermont income. The 2025 single schedule charges 3.35% on taxable income up to 49,400, so if $40,000 were your whole taxable income the tax is $1,340 (computed as $40,000 times 3.35%), before credits.
What changes in 2026
The documents read print no 2026 rate schedule or exemption change.
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 Vermont taxes pensions, how Vermont taxes retirement income, whether Vermont taxes Roth conversions, and the state-by-state table of 401(k) and IRA withdrawal tax.
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Answer againSources
- 2025 Vermont Income Tax Booklet (Form IN-111 and Schedule IN-112 instructions, Retirement Income Exemption Worksheet): https://tax.vermont.gov/sites/tax/files/documents/Income-Booklet-2025.pdf
- 2025 Vermont Tax Rate Schedules: https://tax.vermont.gov/sites/tax/files/documents/TaxRateSched-2025.pdf
- 32 V.S.A. 5830e Retirement income; Social Security income: https://legislature.vermont.gov/statutes/section/32/151/05830e
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.