Updated October 16, 2026. Quick answer: Alabama’s exemptions are for named plan types, and the Department of Revenue lists “Payments from a Defined Benefit Retirement Plan in accordance with IRC 414(j)”; the Form 40 instructions list 403(b) distributions on the retirement line but the documents do not say a 403(b) or 457(b) qualifies for that defined benefit exemption. Separately, Schedule RS lets each taxpayer 65 or older exclude up to $6,000 of retirement income taxable to Alabama, the line where the instructions place 403(b) distributions.
State retirement-income forms, line by line: Alabama Schedule RS.
Alabama at a glance
| Item | What the documents say |
|---|---|
| How the state treats 403(b) and 457(b) withdrawals | The documents read do not say whether these plans qualify for the defined benefit exemption; a taxpayer 65 or older can exclude up to $6,000 of retirement income taxable to Alabama |
| Do the state’s documents name these plans? | The documents read name 403(b) plans but not 457(b) plans |
| Retirement exclusion or credit | Exemption for payments from a defined benefit plan under IRC 414(j) and named public systems, with no dollar cap printed; separately, Schedule RS lets each taxpayer 65 or older exclude up to $6,000 of retirement income taxable to Alabama |
| Public-employee pension rule | Yes, named public retirement systems are listed |
| Rate in the documents read | 5% on taxable income over $3,000 (single filers) |
| Changed for 2026? | The documents read describe no 2026 change |
What the Alabama documents say
The Department of Revenue’s page on income exempt from Alabama income taxation lists “State of Alabama Teachers Retirement System benefits” among the exempt retirement income. The Form 40 instructions place “IRA distributions (include SEP, Keogh, 401(k)(2), 403(b) distributions)” on the retirement income line of the return, and they tell a reader to contact the retirement plan administrator to determine whether the plan qualifies.
Schedule RS adds an age-based exclusion. For a taxpayer 65 or older who receives taxable retirement income, it says “each taxpayer is eligible up to $6,000 not to exceed the Retirement Income Taxable to Alabama”.
The Department’s rate FAQ prints the rate as “5% All taxable income over $3,000”.
Withholding and federal tax
Whether a state withholds is a separate rule: see state withholding on retirement withdrawals. Federal rules: 403(b) withdrawal rules and 457(b) withdrawal rules. The IRS says pension and annuity payments from a qualified employer plan have “all or some portion of the amounts you receive may be taxable”.
What the documents do not say
- The documents read do not name 457(b) plans.
- They do not say a 403(b) is a defined benefit plan or otherwise qualifies for the defined benefit exemption; they point the reader to the plan administrator.
- No section of the Code of Alabama is cited for the exemption in the documents read.
Common mistakes
- Assuming Alabama’s rule for a 401(k) or IRA also covers a 403(b) or 457(b): read whether its documents name the plan.
Related: whether Alabama taxes 401(k) and IRA withdrawals, Alabama retirement taxes, whether Alabama taxes pensions, 403(b) withdrawal rules, 457(b) withdrawal rules, and state withholding on retirement withdrawals.
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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
- Income Exempt from Alabama Income Taxation: https://www.revenue.alabama.gov/individual-corporate/income-exempt-from-alabama-income-taxation/
- What is Alabama’s Individual Income Tax Rate? (FAQ): https://www.revenue.alabama.gov/faqs/what-is-alabamas-individual-income-tax-rate/
- Schedule RS (Form 40 or Form 40NR), Retirement Schedule, Tax Year 2025: https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25schrsblk.pdf
- IRS Tax Topic 410, Pensions and annuities: https://www.irs.gov/taxtopics/tc410
Sources: the primary documents linked above, read on October 16, 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.