Updated October 16, 2026. Quick answer: Montana taxes 403(b) and 457(b) withdrawals like other income: the Department of Revenue’s changes overview says “Several subtractions were repealed as of January 1, 2024” and lists the “partial pension, annuity, and IRA exemption” among them, and the documents read name neither plan. On the 2025 Form 2, a taxpayer 65 or older gets a $5,660 subtraction from federal taxable income, whatever the source of the income; the amount is adjusted annually for inflation.
Montana at a glance
| Item | What the documents say |
|---|---|
| How the state treats 403(b) and 457(b) withdrawals | Taxed like other income; no retirement-plan exclusion is described |
| Do the state’s documents name these plans? | The documents read name neither 403(b) nor 457(b) plans |
| Retirement exclusion or credit | None for these plans; the instructions describe a partial subtraction for working military retirees, a subtraction for Railroad Retirement Board benefits, and a $5,660 subtraction for any taxpayer 65 or older that is not limited to retirement income |
| Public-employee pension rule | No public-employee pension exclusion is described |
| Rate in the documents read | 4.7% below $47,500 and 5.65% at $47,500 or greater for single filers and married filing separately in 2026; the 2027 table prints 5.4% at $65,000 or greater |
| Changed for 2026? | House Bill 337 lowered the top marginal rate and raised the brackets for tax year 2026 |
What the Montana documents say
The Montana Form 2 instructions say the state’s 2025 legislature changed the rates: “House Bill 337 lowered the top marginal tax rate”. The 2026 tax table for single filers and married filing separately prints 5.65% on taxable income of $47,500 or greater, with 4.7% below that line; the 2027 table moves the upper line to 5.4% at $65,000 or greater.
The retirement subtractions the instructions describe are a partial subtraction for working military retirees and a subtraction for Railroad Retirement Board benefits; neither covers a 403(b) or 457(b). A 403(b) or 457(b) distribution that is included in federal taxable income is therefore reported like other income. Separately, on the 2025 Form 2 a taxpayer 65 or older receives a $5,660 subtraction from federal taxable income ($11,320 when both spouses filing jointly are 65 or older), which applies whatever the source of the income; the amounts are adjusted annually for inflation.
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 403(b) or 457(b) plans.
- The rate table read is the single and married-filing-separately table; other filing statuses use different bracket lines.
- No section of the Montana Code is cited in the documents read.
Common mistakes
- Assuming Montana’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 Montana taxes 401(k) and IRA withdrawals, Montana retirement taxes, whether Montana taxes pensions, 403(b) withdrawal rules, 457(b) withdrawal rules, and state withholding on retirement withdrawals.
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Answer againSources
- 2025 Montana Form 2 Instructions: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2025_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf
- Overview of Changes to Form 2: https://revenue.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2/Form-2-Changes.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.