Updated October 4, 2026. Quick answer: Yes. Arizona taxes traditional 401(k) and IRA withdrawals as ordinary income at a flat 2.5% (2025 return). The Form 140 booklet says “Arizona gross income is your federal adjusted gross income” Its pension subtraction, $2,500, is for U.S., Arizona state or local government pensions.
State retirement-income forms, line by line: Arizona Form 140 line 29a.
Inherited an IRA? What the state’s own documents say about taxing those withdrawals: Arizona tax on inherited IRA withdrawals.
Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does Arizona 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: Arizona 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 Arizona have an inheritance tax?.
What Arizona does with 401(k) and IRA withdrawals
The booklet gives the computation as: “Multiply line 45 by 2.5% (.025) and enter the result”
| Item | What the documents say |
|---|---|
| Treatment | Taxable as part of Arizona gross income; a $2,500 pension subtraction exists for certain government pensions |
| State rate | 2.5% flat (2025 return) |
| Source | Arizona Department of Revenue, 2025 Form 140 booklet |
A $40,000 withdrawal
A $40,000 withdrawal adds $1,000 of Arizona tax at the 2025 rate (computed as $40,000 times 2.5%), before any deduction or credit you may have. Your withdrawal is not a government pension, so the $2,500 subtraction does not apply to it.
Conditions that decide the answer
- Government pensions: subtract the amount received or $2,500, whichever is less, on Line 29a.
- The booklet lists public pension systems as the qualifying sources; a withdrawal from a private-employer 401(k) or your own IRA is not a public pension.
What changes in 2026
The 2025 booklet prints no 2026 rate, so none is stated here.
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 Arizona taxes pensions, how Arizona taxes retirement income, whether Arizona taxes Roth conversions, and the state-by-state table of 401(k) and IRA withdrawal tax.
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Answer againSources
- Arizona Form 140 Resident Personal Income Tax Booklet (2025): https://azdor.gov/sites/default/files/document/FORMS_INDIVIDUAL_2025_140Booklet.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.