Updated October 4, 2026. Quick answer: Yes, with an exclusion for a retiree aged 62 or older. The NJ-1040 instructions list “401(k) Plan distributions” as taxable retirement income. The pension exclusion is up to $75,000 single or $100,000 joint, available only if income is $150,000 or less.
State retirement-income forms, line by line: NJ-1040 pension exclusion.
Inherited an IRA? What the state’s own documents say about taxing those withdrawals: New Jersey tax on inherited IRA withdrawals.
Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does New Jersey 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: New Jersey tax withholding on IRA and 401(k) withdrawals.
What New Jersey does with 401(k) and IRA withdrawals
The instructions say retirement income such as pensions, annuities and “certain IRA withdrawals is taxable in New Jersey”. The exclusion’s income test reads: “Your income on line 27 is $150,000 or less”.
| Item | What the documents say |
|---|---|
| Treatment | Taxable, with a pension exclusion at 62 or older |
| Exclusion | Up to $75,000 single or $100,000 joint; $50,000 married filing separately |
| Income limit | Income of $150,000 or less; the exclusion shrinks above $100,000 |
| Source | New Jersey Division of Taxation, 2025 NJ-1040 instructions |
A $40,000 withdrawal
For a single filer aged 62 or older with income of $100,000 or less, the exclusion is the smaller of the taxable retirement income reported and $75,000, so a $40,000 withdrawal falls fully inside it and adds $0 of taxable income. Above the income limit the exclusion is phased down or lost.
Conditions that decide the answer
- Income of $100,000 or less: the full exclusion, capped at the taxable retirement income reported.
- Income of $100,001 to $125,000: 37.5% of taxable retirement income for single filers, 50% for joint filers.
- Income of $125,001 to $150,000: 18.75% for single filers, 25% for joint filers.
- Income over $150,000: no exclusion.
What changes in 2026
No 2026 figures appear in the 2025 instructions.
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 New Jersey taxes pensions, how New Jersey taxes retirement income, whether New Jersey taxes Roth conversions, and the state-by-state table of 401(k) and IRA withdrawal tax.
Find the right next step for your situation
About how much do you have invested? Pick the range that fits; your next step appears immediately below.
Compare vetted advisors for retirement withdrawals
If your portfolio is $250,000 or more, this connects you (free, with no obligation to hire anyone) with 2 to 3 vetted advisors.
Before you start, what actually happens. The matching service is run by WiserAdvisor, an independent advisor-matching company. It opens on their site, asks for your ZIP code and a few questions, and matches you with 2 to 3 vetted advisors. It is free to you.
WiserAdvisor states the service is built for portfolios of $250,000 and above. By submitting, you consent to emails, phone calls and text messages from WiserAdvisor and up to three advisors, so expect to be contacted. Clear Money Guide may earn a referral payment for a qualifying completed form, whether or not you ever hire anyone.
Opens on WiserAdvisor’s site in a new tab.
See how an advisor plans your withdrawals
Price the destination before you decide. The matching service below introduces you to advisers who pay to meet you.
Before you start, what actually happens. The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide may earn a referral payment for a qualifying submitted form, whether or not you ever hire anyone. This is free to you and there is no obligation to hire anyone.
The Kapitalwise form opens here; you stay on this page.
What happens when you press the button
It asks about nine questions: age, investable assets, location; then your name, email and phone number, and verifies the phone by text. Nothing loads and nothing reaches Kapitalwise until you press the button.
Prefer flat-fee or hourly pricing instead? Compare ranges here.
Answer againSources
- 2025 NJ-1040 Instructions: https://www.nj.gov/treasury/taxation/pdf/current/1040i.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.