Updated October 7, 2026. Quick answer: Not as a rule. Alabama does not require withholding on IRA or 401(k) withdrawals: the Department of Revenue’s rule says “Alabama income tax is not required to be withheld” from a retirement or pension plan distribution, and “voluntary withholding of Alabama income tax is permissible”.
Drawing a pension? Whether the state withholds tax from it, from its own documents: Alabama tax withholding on pension payments.
Alabama withholding at a glance
| Item | What the documents say |
|---|---|
| Is it required? | No. Alabama income tax is not required to be withheld from a retirement or pension plan distribution |
| Rate or amount | None stated; a payer that withholds voluntarily sets the terms |
| How to start or stop it | Not stated in the documents read; ask the payer |
| Direct rollover | Not stated in the documents read |
| Changed for 2026? | No change stated; the rule was last amended in 2016 |
What the Alabama documents say
The rule is Alabama Administrative Code 810-3-26-.02, headed Voluntary Withholding of Alabama Income Tax from Nonwage Payments. Its first sentence says “Alabama income tax is not required to be withheld” from distributions from a retirement or pension plan, interest payments or other nonwage payments, and the next sentence is “voluntary withholding of Alabama income tax is permissible”.
A payer that does withhold has to follow the rule’s steps: remit the money as the rule describes, give the recipient a statement showing the year, the payment, and the Alabama and federal tax withheld, and file Form A-3, “Annual Reconciliation of Alabama Income Tax Withheld”.
A $50,000 withdrawal: cash in hand or a direct rollover
Take a $50,000 401(k) withdrawal paid to you. 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. Alabama adds nothing on its own: because the rule says Alabama withholding is not required, the Alabama amount withheld is $0 unless you ask the payer to withhold some. The documents read name no rate and no form for that request.
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 Alabama 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 Alabama 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 name no rate, no form for asking a payer to withhold, and no treatment of a direct rollover. The rule read was last amended in 2016, and no 2026 change is stated.
Common mistakes
- Assuming Alabama tax was withheld because federal tax was; the rule says Alabama withholding is not required.
- Treating no withholding as no tax: a withdrawal that is taxable in Alabama is still reported on the return.
- 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 Alabama taxes 401(k) and IRA withdrawals, Alabama retirement taxes, and retirement withholding calculator.
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Answer againSources
- 810-3-26-.02 Voluntary Withholding of Alabama Income Tax from Nonwage Payments: https://www.revenue.alabama.gov/wp-content/uploads/2021/12/810-3-26-.02.pdf
- 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.