Updated October 7, 2026. Quick answer: Yes, when federal tax is withheld, unless you qualify for the exclusion. The Department of Revenue’s rule says retirement payments “subject to Iowa withholding tax if they are also subject to federal” withholding, and the 2026 IA W-4P says “Iowa income tax is not required to be withheld from these distributions” to recipients who qualify for the exclusion.
Drawing a pension? Whether the state withholds tax from it, from its own documents: Iowa tax withholding on pension payments.
Iowa withholding at a glance
| Item | What the documents say |
|---|---|
| Is it required? | Yes when federal withholding applies, except for qualifying recipients (age 55 or older on December 31, 2025, disabled, or a qualifying survivor) |
| Rate or amount | Payers may withhold at 3.8%, use the withholding formula, or use the withholding tables |
| How to start or stop it | Form IA W-4P (44-020), given to the plan administrator; check the box saying you have no pension or annuity income subject to Iowa income tax, or add an additional amount |
| Direct rollover | Not stated in the documents read |
| Changed for 2026? | The 2026 IA W-4P states the 3.8% payer option; the documents do not describe what changed |
What the Iowa documents say
The Department of Revenue’s withholding rules in the Iowa Administrative Code cover pensions, annuities and other nonwage payments to Iowa residents. They say these payments are “subject to Iowa withholding tax if they are also subject to federal” withholding tax, and add that no state withholding is required to the extent the payments are not subject to Iowa income tax. The text archived is the 2023 edition, and it sets a rate: “withholding of state income tax from the lump-sum distribution is 5 percent”, or from the taxable amount if the payer knows it.
The 2026 IA W-4P, the withholding certificate for pension or annuity payments, says “Payers have the option of withholding at a rate of 3.8%”, using the formula or using the tables. For recipients who take the exclusion, it says “Iowa income tax is not required to be withheld from these distributions”. The form states that Iowa tax is withheld from pension and annuity payments for Iowa residents only.
A $50,000 withdrawal: cash in hand or a direct rollover
Take a $50,000 401(k) withdrawal paid to you by someone who does not qualify for the exclusion. The IRS says a taxable eligible rollover distribution paid to you from an employer plan is subject to “mandatory income tax withholding (generally at a rate of 20%)”, which on $50,000 is $10,000 (computed as $50,000 times 20%) held back for federal tax. Iowa withholding then follows because federal tax is withheld; at the payer’s 3.8% option it is $1,900 (computed as $50,000 times 3.8%), while the 5 percent in the older code text would be $2,500 (computed as $50,000 times 5%); the two documents differ and the form is the newer one, so confirm the rate with the payer. A recipient who qualifies for the exclusion and checks the box on the IA W-4P has nothing withheld for Iowa.
The other path is a direct rollover to an IRA or another plan. For federal tax the IRS says “The mandatory withholding doesn’t apply in a direct rollover”. The Iowa documents read do not say how a direct rollover is treated for state withholding, so confirm it with the payer before choosing.
What a mover should know
This page is about Iowa as a state of residence. An instruction line written for a nonresident or part-year filer is not the rule for a resident, and none of the documents read settles a part-year or two-state case, so check each state’s own rule. The federal side is the same everywhere; CMG’s federal 20% withholding on a pension lump sum page covers it, and state withholding on retirement withdrawals lists the other states checked.
What the documents do not say
- The documents read do not say how a direct rollover is treated, and they describe no 2026 change beyond the form’s own 3.8% option. The Iowa Administrative Code text archived is dated 2023.
Common mistakes
- Assuming the 3.8% is mandatory; the form says payers have the option of withholding at that rate, or using the formula or tables.
- Giving the IA W-4P to the Department of Revenue; the form says to submit it to the plan administrator.
- Assuming the answer for one state applies to another, or that state withholding settles the state tax owed at filing.
Related: state withholding on retirement withdrawals, how Iowa taxes 401(k) and IRA withdrawals, Iowa retirement taxes, and retirement withholding calculator.
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Answer againSources
- Iowa Administrative Code, Revenue[701] Withholding rules (701 IAC 307): https://www.legis.iowa.gov/docs/iac/chapter/09-20-2023.701.307.pdf
- 2026 IA W-4P Withholding Certificate for Pension or Annuity Payments (44-020): https://revenue.iowa.gov/media/4425/download?inline=
- IRS Tax Topic 413, Rollovers from retirement plans: https://www.irs.gov/taxtopics/tc413
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.