Arizona Charges a Flat 2.5% on IRA Withdrawals and Nevada Charges Nothing. Here’s What the Gap Is Worth to a Retired Couple
Two states, two very different retirement tax bills, but the number that actually tips the scale for most couples has nothing to do with income tax at all.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
A married California couple, both past 65, plan to take $100,000 a year from traditional IRAs. They are choosing between Henderson, Nevada, and Arizona. Nevada’s state income tax on that money is zero. Arizona’s bill comes to about $1,412.50 once its deductions apply. A flat rate on the whole withdrawal would suggest $2,500. The gap is real, but it is small next to the property tax differences between the two places.
Nevada Bans a Personal Income Tax, and Arizona Charges 2.5% After Deductions
Nevada’s constitution prohibits any income tax on the wages or personal income of individuals (Article 10, Section 1). That means IRA withdrawals and Social Security go untaxed at the state level.
Arizona taxes every filer at a flat 2.5%, according to the Arizona Department of Revenue. IRA withdrawals count as ordinary income. Social Security retirement benefits are excluded from Arizona income under state law. Governor Hobbs signed HB 4168 on June 13, 2026, and Current Federal Tax Developments reports that it set Arizona’s joint standard deduction at $31,500, retroactive to tax years after 2024.
Arizona’s $6,000 Senior Subtraction for Each Spouse Over 65
HB 4168 also added a subtraction from income under A.R.S. § 43-1022 that mirrors the federal senior deduction in IRC § 151(d)(5)(C). It is $6,000 for each spouse who turns 65 by year end, and it covers 2025 through 2028. Current Federal Tax Developments notes that the Arizona Department of Revenue’s guidance issued before the law passed treated the subtraction as optional. The enacted statute makes it required (HB 4168).
The subtraction has an income limit. The $6,000 shrinks by 6% of modified adjusted gross income (MAGI, which is AGI plus a few excluded items) above $150,000 for joint filers and above $75,000 for everyone else. Married couples have to file jointly and list each qualifying spouse’s Social Security number (§ 151(d)(5)(C)(iv)). Arizona exempts Social Security, but the federally taxable share of benefits still counts toward MAGI. The example below assumes the couple stays under the joint threshold.
Arizona Bill on the IRA Withdrawals: $1,712.50 Before the Subtraction, $1,412.50 After
| Step | Arizona, before subtraction | Arizona, after subtraction | Henderson, Nevada |
|---|---|---|---|
| Traditional IRA withdrawals | $100,000 | $100,000 | $100,000 |
| Joint standard deduction | $31,500 | $31,500 | None |
| Senior subtraction, two spouses | None | $12,000 | None |
| Arizona taxable income | $68,500 | $56,500 | None |
| State income tax | $1,712.50 | $1,412.50 | $0 |
That $1,412.50 covers only state income tax. Property, sales and vehicle taxes are left out, and each of those differs between the two states.
California Keeps Taxing the Same Withdrawals Until Move Day
California taxes IRA withdrawals as ordinary income under graduated brackets. The Tax Foundation’s 2025 index places California 49th on individual income tax, compared with 8th for Arizona and 7th for Nevada. Once the couple becomes nonresidents, federal law (4 U.S.C. § 114) blocks California from taxing their IRA distributions. California can still tax withdrawals taken while they lived there.
Oro Valley and Reno Retirees Show Property Tax Can Outweigh a $1,412 Gap
The Wall Street Journal profiled Earl and Pat Vittitoe, who moved from Illinois to Oro Valley, Arizona. They paid more than $13,000 a year in property tax in Illinois and now pay about $3,600. Illinois exempts IRA withdrawals, though, so once Earl’s required withdrawals begin, the couple will pay a little more income tax in Arizona than they would have.
Ed and Gina Budde moved from the Minneapolis area to Reno in 2019. They pay about $2,200 in property tax, roughly half their old bill, and their yearly spending fell to about $75,000 from around $100,000. They have since moved to Henderson.
On property tax, the Tax Foundation places Nevada 7th and Arizona 13th. On sales tax, Arizona places 45th and Nevada 40th. Federal price-level data for 2024 puts Arizona’s cost of living at 100.677 and Nevada’s at 99.979, against a national average of 100.
Four Things to Check Before Your First 2027 Withdrawal in a New State
- Check whether large IRA withdrawals and Roth conversions can wait until after your move date, since California taxes income you receive while you are a resident.
- List the links you still have to California: your home, driver’s license, voter registration, car registration and doctors. Residency audits look at all the facts and circumstances, so no single step decides the question.
- Look into California’s Form 540NR, the return for part-year residents, for the year you move. It splits your income by date.
- Before you buy, get a property tax estimate for the actual home from the county assessor. Have a CPA licensed in both states check whether taxable Social Security plus any Roth conversions would push your MAGI past $150,000.
On that last point about conversions and MAGI, the stretch between leaving California and your first required withdrawal is often the cheapest tax window you will ever see again, and we laid out how to use it in a free Roth guide here.
Bottom Line on a $1,412.50 Gap
For this couple, Arizona’s income tax on $100,000 of IRA withdrawals works out to about $1,412.50 a year, and Nevada’s is zero. The property tax bill on the specific house, plus the timing of the California exit, will probably matter more.
Contact [email protected] for any questions or corrections.
Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
