Updated: July 30, 2026
OPRS may receive compensation when readers open an account through partner links on this page. Our analysis is based on independent research, BBB data, and IRS publications.
30-second verdict
- Iowa fully excludes retirement income from state income tax for filers age 55 or older, disabled, or surviving spouses, under Iowa Code Section 422.7(31). The exclusion took effect for tax year 2023 under House File 2317 and covers traditional IRA, Roth IRA (the taxable earnings portion), 401(k), 403(b), 457(b), pension, annuity, and self-directed gold IRA distributions.
- For non-retirement income or filers under 55, Iowa runs a flat 3.8 percent rate under Iowa Code Section 422.5A in tax year 2025 and after. The schedule moved from a graduated bracket structure that topped out at 8.53 percent in 2022 to 6 percent in 2023, 5.7 percent in 2024, and the 3.8 percent flat rate in 2025.
- Iowa imposes no state-level early-distribution penalty parallel to federal IRC Section 72(t). Wisconsin charges 33 percent under Wisconsin Statute 71.83(1)(b)6. California charges 2.5 percent. Iowa charges zero on the same dollar.
- Iowa repealed its state inheritance tax effective for deaths on or after January 1, 2025, under Senate File 619 (2021). Iowa Code Chapter 450 still governs the residual administration of pre-2025 estates. Iowa has no state estate tax.
- Federal mechanics still bite: the IRC Section 72(t) 10 percent additional tax on pre-59-and-a-half distributions applies in full. SECURE 2.0 set the RMD age at 73 for participants born 1951 to 1959 and 75 for those born 1960 and after.
- No Iowa-based IRS-approved depository exists. Metals for an Iowa-resident self-directed gold IRA are stored at Delaware Depository, IDS Texas, Brink’s Salt Lake City, or HSBC vaults. The custodian arranges insured shipping at distribution.
- Iowa state sales tax is 6 percent under Iowa Code Section 423.2, with local option sales tax of 1 percent in most jurisdictions. The Iowa Department of Revenue at tax.iowa.gov administers both individual income tax and sales tax.
An Iowa resident who funds a self-directed gold IRA from a rolled balance and then takes a distribution faces a two-layer tax question: federal first, then Iowa state on the same dollar. The Iowa Department of Revenue administers the state income tax. The federal Form 1099-R flows to the IRS and to Iowa through the IA 1040 individual income tax return.
Element I is the Iowa retirement income exclusion under Iowa Code Section 422.7(31). The exclusion zeros out the Iowa tax on a qualifying IRA distribution for a filer age 55 or older. See the dealers OPRS clears and the ones we warn against before any distribution call. The custodian’s depository, shipping, and Form 1099-R coding control whether the IA 1040 filing is clean or messy.
Element II is the Iowa flat rate of 3.8 percent under Iowa Code Section 422.5A. That rate applies to any taxable Iowa income that the retirement exclusion does not cover. Element III is the federal mechanic stack: IRC Section 72(t), the SECURE 2.0 RMD age, and IRC Section 3405 withholding default. These federal layers apply at the federal level regardless of Iowa residency.
Element IV is sourcing risk. An Iowa resident who moved from Illinois, Minnesota, or another former state may carry latent state-tax exposure if domicile was not cleanly broken. The federal Pension Source Tax Act of 1996 (4 U.S.C. Section 114) blocks former-state claims on retirement income once Iowa residency is established. Missing any one of these four elements complicates an otherwise routine IRA distribution.
How Iowa taxes traditional IRA distributions: the 55-plus exclusion
Iowa Code Title X, Chapter 422 governs the Iowa individual income tax. House File 2317, signed by Governor Kim Reynolds on March 1, 2022, restructured the Iowa tax framework on multiple fronts. The retirement income exclusion under Iowa Code Section 422.7(31) is the most consequential change for a self-directed gold IRA participant. The exclusion took effect for tax year 2023 and removes Iowa income tax on qualifying retirement income for filers age 55 or older.
The Iowa Department of Revenue administers the tax through Form IA 1040 (individual return) and the IA 1040 Schedule 1 modifications schedule. A traditional IRA distribution from a self-directed gold IRA is reported on federal Form 1099-R. The federally taxable amount flows into the Iowa starting income figure. Iowa applies the Section 422.7(31) exclusion as a subtraction on Schedule 1 before the flat-rate math runs.
The retirement income exclusion under Iowa Code Section 422.7(31) is unlimited in dollar amount for qualifying filers. There is no per-person cap and no income-threshold phase-out. A retired Iowa resident at age 67 with a $200,000 traditional IRA distribution in tax year 2026 excludes the full $200,000 from Iowa taxable income and pays zero Iowa state tax on the distribution.
The eligibility gate is age, disability, or surviving-spouse status. The age threshold is 55 by the end of the tax year. A filer who turns 55 on December 28 of the tax year qualifies for the full exclusion in that year. The disability gate uses the federal disability definition under IRC Section 72(m)(7). The surviving-spouse gate covers a spouse continuing to receive retirement payments after the participant’s death.
The covered account types include traditional IRA, Roth IRA (the taxable earnings portion of a non-qualified distribution), SEP IRA, SIMPLE IRA, 401(k), 403(b), 457(b), defined benefit pension, annuity, and self-directed gold IRA distributions reported on Form 1099-R. The Iowa Public Employees Retirement System (IPERS), the Federal Employees Retirement System (FERS), and federal Thrift Savings Plan (TSP) distributions also qualify.
A Roth IRA qualified distribution (five-year period satisfied and the participant age 59 and a half or older) is federally tax-free and Iowa tax-free. A non-qualified Roth distribution is subject to federal income tax on the earnings portion only under the basis-ordering rules of IRC Section 408A(d). That taxable earnings portion is also Iowa-excluded under Section 422.7(31) if the participant is 55 or older.
The Iowa flat tax: Section 422.5A rate history and 2026 schedule
Iowa Code Section 422.5A sets the individual income tax rate. House File 2317 in 2022 scheduled the phased reduction. House File 2526, signed by Governor Reynolds in May 2024, accelerated the schedule. The 2022 starting rate was a graduated structure with a top marginal of 8.53 percent at higher income levels. The 2023 top rate dropped to 6 percent. The 2024 top rate dropped to 5.7 percent.
The 2025 rate consolidated to a flat 3.8 percent for all Iowa taxable income, regardless of filing status or income level. The 2026 rate remains at the flat 3.8 percent under Iowa Code Section 422.5A. The flat rate replaced the prior graduated brackets entirely. There is no Iowa standard deduction modification beyond the federal starting point on Form IA 1040.
For a filer 55 or older with qualifying retirement income, the flat rate does not bite because the Section 422.7(31) exclusion zeros out the taxable amount before the rate applies. For a filer under 55, the flat 3.8 percent rate applies to any taxable IRA distribution after the federal taxable amount flows to Iowa.
A 52-year-old Iowa resident who takes an early IRA distribution faces the federal 10 percent additional tax under IRC Section 72(t) plus federal income tax on the distribution. The same dollar is then taxed at the Iowa flat 3.8 percent rate because the under-55 filer does not qualify for the Section 422.7(31) exclusion. Iowa does not impose a separate state-level 72(t) parallel penalty.
The flat rate also applies to non-retirement income for filers 55 or older: wages, business income, Schedule C income, rental income from real estate, and Iowa-source capital gains all run at the 3.8 percent rate. The retirement income exclusion is specific to Form 1099-R retirement distributions and does not extend to wage income or capital gains.
Precious metals IRA early-withdrawal penalty estimator
Taking money out of a precious metals IRA before age 59 and a half triggers a 10% federal additional tax on top of ordinary income tax. State add-on taxes vary; check your state. The federal penalty is estimated below.
Estimate only, not tax advice. The 10% federal additional tax applies to early distributions before age 59 and a half; specific exceptions exist. Your state may add its own tax, and ordinary income tax applies separately. Source: IRS Publication 590-B. Consult a tax advisor.
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Federal mechanics that still apply: 72(t), RMDs, and withholding
Iowa state law does not reach the federal mechanics on a gold IRA. The IRC Section 72(t) 10 percent additional tax on pre-59-and-a-half distributions applies in full. The exceptions are the same federal exceptions that apply in every state. They include medical expenses above 7.5 percent of AGI, qualified higher education expenses, first-time homebuyer ($10,000 lifetime), substantially equal periodic payments under Section 72(t)(2)(A)(iv), and the public safety officer age-50 exception under Section 72(t)(10).
The SECURE Act 2.0 amended IRC Section 401(a)(9). The required minimum distribution (RMD) age is 73 for participants born between 1951 and 1959. It is 75 for participants born in 1960 and after. The RMD calculation uses the Uniform Lifetime Table in IRS Publication 590-B Appendix B. Iowa does not impose a parallel state-level RMD because the federal RMD already triggers the Iowa starting income inclusion on Form IA 1040.
The withholding default on a traditional IRA distribution is 10 percent federal withholding under IRC Section 3405(b)(1) unless the participant elects out on Form W-4R. Iowa state withholding on retirement distributions is generally elective. The Iowa W-4P (Withholding Certificate for Pension or Annuity Payments) can be filed with the custodian to set a specific Iowa withholding amount. For a 55-plus retiree with full Section 422.7(31) exclusion, the Iowa withholding amount is zero.
An indirect rollover (60-day rollover under IRC Section 408(d)(3)) subjects the participant to a mandatory 20 percent federal withholding on the distribution from an employer plan before re-deposit. The 20 percent is held against federal tax. Iowa state tax is not pre-withheld on the indirect rollover. A direct trustee-to-trustee transfer avoids both withholdings entirely.
The IRS Publication 590-B treatment of an in-kind distribution from a self-directed gold IRA is the same in Iowa as in every other state. The fair market value of the physical metal on the distribution date is the federally taxable amount. The custodian reports the FMV on Form 1099-R Box 1. Iowa applies the flat 3.8 percent rate against that FMV on Form IA 1040, reduced to zero by the Section 422.7(31) exclusion for a 55-plus filer.
Snowbirds, former-state taxation, and the Pension Source Tax Act
An Iowa resident who previously lived in Illinois, Minnesota, Wisconsin, or another former state may carry latent state-tax exposure if the former state asserts continuing-residency status. The federal Pension Source Tax Act of 1996 (4 U.S.C. Section 114) blocks a former state of residence from taxing retirement income paid to a person who is no longer a resident of that state.
The protection covers traditional IRA, Roth IRA, 401(k), 403(b), 457(b), defined benefit pension, and self-directed gold IRA distributions. The statute defines retirement income broadly. It includes IRA distributions under IRC Section 408 and qualified plan distributions under IRC Section 401. The protection applies once the participant has established residency in the new state.
The Iowa side is the current-state-of-residence claim. The former state’s claim is the question the Pension Source Tax Act resolves. For an Iowa 55-plus retiree, the Section 422.7(31) exclusion zeros out the Iowa portion, and the federal preemption blocks the former-state claim. The net state-tax bill on a typical retirement distribution is zero.
Documentation discipline matters. Update the IRA custodian’s address of record to the Iowa address. File a final part-year return for the former state in the year of the move. Update voter registration, Iowa driver’s license, and any other indicia of domicile. Hold the old state’s documents for the audit lookback period (typically three to four years).
The reverse case is also possible. An Iowa retiree who moves to a no-state-tax state (Florida, Texas, Tennessee, Wyoming, South Dakota) drops the Iowa residency tie from the date of new domicile. The Iowa side was already zero at the 55-plus exclusion, so the practical state-tax outcome is unchanged on a typical IRA distribution. The move-out matters more for non-retirement Iowa-source income.
Snowbird households that maintain two residences must pick one as the state of domicile. Day-count rules vary by state. Illinois uses a multi-factor residency analysis and an active audit posture on Iowa-bound moves with retained Illinois connections. Iowa asserts residency based on physical presence plus intent to remain, addressed in Iowa Department of Revenue guidance on domicile.
Depository, custodian, and shipping considerations from Iowa
The IRS does not approve any depository located in Iowa. Self-directed gold IRA metals for an Iowa-resident participant are held at one of the standard out-of-state IRS-approved depositories. The most common include Delaware Depository (Wilmington), International Depository Services (Dallas and Delaware), Brink’s Global Services USA (Salt Lake City and Los Angeles), HSBC Bank USA vaults (New York), and CNT Depository (Bridgewater, Massachusetts).
The depository choice is set by the custodian. A self-directed IRA custodian such as Equity Trust, STRATA Trust Company, Kingdom Trust, or Madison Trust has standing relationships with specific depositories. An Iowa-resident participant does not select the depository directly. The participant selects the custodian. The custodian selects the depository from its approved list.
An in-kind distribution to an Iowa-resident participant ships from the depository via insured carrier. The carrier is typically Brink’s, Loomis, or a similar armored-transport firm with secured-package experience. The shipping cost is borne by the participant and is not deductible because the distribution itself is the taxable event.
Shipping fees commonly run from $150 to $500 per shipment depending on insured value and destination ZIP code. Iowa metro destinations such as Des Moines, Cedar Rapids, Davenport, Sioux City, and Iowa City typically carry standard rates. A rural Iowa ZIP code in counties like Adams, Ringgold, or Davis may carry a modest surcharge or require a regional carrier handoff.
An in-cash distribution avoids the shipping question entirely. The depository sells the metal at the spot price on the distribution date. The cash proceeds are wired to the participant’s bank or sent by ACH. The federally taxable amount is the cash distribution amount on Form 1099-R Box 1. The Iowa mechanic is identical to any other IRA cash distribution: the Section 422.7(31) exclusion runs against the same dollar for a 55-plus filer.
The Iowa inheritance tax repeal and estate considerations
Iowa repealed its state inheritance tax under Senate File 619, signed by Governor Reynolds on June 16, 2021. The repeal phased the tax out across tax years 2021 through 2024 and eliminated the tax entirely for deaths on or after January 1, 2025. Iowa Code Chapter 450 still governs the residual administration of pre-2025 estates and any unfiled returns from the phase-out years.
Iowa has no state-level estate tax. The federal estate-tax exclusion for 2025 was $13.99 million per individual ($27.98 million for a married couple with portability). The 2026 figures will be set by IRS Revenue Procedure for inflation adjustment. The Iowa-side estate-tax layer on a gold IRA holding is zero for any Iowa decedent dying on or after January 1, 2025.
An Iowa-resident gold IRA participant with a balance above the federal exclusion threshold faces the federal estate tax filing obligation on Form 706. The Iowa state-level estate or inheritance filing obligation is zero. The pre-2025 inheritance tax had exempted spouses, lineal descendants, lineal ancestors, and stepchildren even before full repeal. The repeal extended the zero-tax outcome to all classes of beneficiaries.
The Tax Cuts and Jobs Act of 2017 doubled the federal estate-tax exclusion through 2025. The doubling is set to sunset on January 1, 2026 absent congressional action. The post-sunset federal exclusion is projected at approximately $7 million per individual after inflation adjustment.
Iowa does not conform its (now-repealed) inheritance tax exclusion to the federal estate-tax exclusion. The Iowa-side liability stays zero whether the federal exclusion remains doubled or returns to the pre-TCJA baseline. The federal liability for an Iowa-resident gold IRA holder above the post-sunset threshold should be reviewed with an estate-planning attorney.
Property tax, sales tax, and the broader Iowa retirement landscape
Iowa’s retirement landscape has shifted meaningfully since House File 2317 took effect in 2023. The combination of the unlimited retirement income exclusion under Iowa Code Section 422.7(31) and the inheritance tax repeal under Senate File 619 removes both the income-side and the death-side state tax layers for Iowa retirees on a gold IRA holding.
State sales tax sits at 6 percent under Iowa Code Section 423.2. Most jurisdictions add a 1 percent local option sales tax, bringing the typical combined rate to 7 percent. Most grocery items are sales-tax exempt. Most precious metals coin and bullion sales for investment purposes are exempt from Iowa sales tax under Iowa Code Section 423.3(45) for transactions involving legal tender or numismatic coins meeting the qualifying definition.
The Iowa Homestead Tax Credit under Iowa Code Section 425.1 provides a property tax reduction for Iowa homeowners on their primary residence. Iowa Code Section 425.39 provides an additional Elderly and Disabled Property Tax Credit for homeowners age 65 or older or disabled, with income-based qualification limits set in the statute.
Local property tax is administered county by county and varies widely across Iowa. Polk County (Des Moines), Linn County (Cedar Rapids), and Scott County (Davenport) rates differ on a per-thousand basis. Many Iowa counties offer additional property tax relief programs for residents age 65 or older through local assessor offices.
Iowa imposes no separate state-level capital gains tax. Long-term capital gains for filers under 55 are taxed at the Iowa flat 3.8 percent rate, the same as other taxable income. An Iowa resident who sells non-IRA gold or precious metals at a gain reports the gain federally on Form 8949 and Schedule D and includes the federally taxable amount on Form IA 1040. The Section 422.7(31) retirement income exclusion does not extend to non-IRA gold sales.
Common mistakes Iowa retirees make on a gold IRA
- Treating the Section 422.7(31) exclusion as automatic. The exclusion runs through the IA 1040 Schedule 1 retirement income exclusion line. Tax software defaults vary by vendor. A retiree who receives a Form 1099-R and lets the software default the Iowa retirement income exclusion line to zero overpays the Iowa state tax by 3.8 percent of the distribution amount. The fix is to manually verify the Schedule 1 retirement income exclusion entry.
- Confusing the 55-plus exclusion eligibility window. A filer who is 54 at year-end does not qualify. A filer who turns 55 on December 28 of the tax year does qualify for the full annual exclusion. A filer who turns 55 in January of the next year takes any prior-year distributions at the flat 3.8 percent rate without exclusion.
- Missing the disability and surviving-spouse alternative gates. A filer under 55 with a federal disability determination under IRC Section 72(m)(7) qualifies for the Section 422.7(31) exclusion regardless of age. A surviving spouse continuing to receive retirement payments after the participant’s death qualifies regardless of age. Both gates are commonly overlooked.
- Missing the former-state residency lookback. A retiree who moved to Iowa from Illinois, Minnesota, Wisconsin, or another former state within the prior four years and takes a distribution may receive an audit notice from the former state’s department of revenue asserting continuing residency. The defense is the documentation file: voter registration date, Iowa driver’s license issue date, lease or property tax records, IA 1040 filing history. The Pension Source Tax Act preempts the assertion if domicile was cleanly broken.
- Selecting a custodian without confirming depository shipping to rural Iowa. Most custodians ship in-kind distributions to Iowa metros without issue. A participant in a rural Iowa county should confirm the shipping arrangement in writing at account opening, not at distribution. Confirm the carrier handoff procedure for ZIP codes outside standard armored-route coverage.
- Missing the SECURE 2.0 RMD age update. A 73-year-old Iowa participant born in 1953 is under the age-73 rule. A 71-year-old participant born in 1955 is also under the age-73 rule (RMD starts at age 73). A 65-year-old participant born in 1961 is under the age-75 rule. The custodian’s automated RMD calculation should reflect the birth-year cohort.
- Misreading the inheritance tax repeal effective date. Iowa Senate File 619 phased out the inheritance tax through tax years 2021 to 2024 and fully repealed it for deaths on or after January 1, 2025. An Iowa estate of a decedent dying in 2024 still had a partial inheritance tax filing obligation. Estate planning that assumed the 2025 repeal effective date should be reviewed against the actual death date.
- Skipping dealer vetting because the state-tax math now favors retirees. The unlimited Section 422.7(31) exclusion makes the Iowa state-level cost on a retirement-stage distribution zero for any 55-plus filer. That does not remove the dealer-selection layer. The custodian, depository, fee schedule, and buyback policy still matter. Check this dealer against the 2026 OPRS list before any custodian conversation.
What changed in 2026 for an Iowa gold IRA participant
The federal contribution and distribution rules continue to evolve. The IRA contribution limit for 2025 was $7,000 (under age 50) and $8,000 (age 50 and older catch-up) under IRC Section 219(b)(5). The 2026 figures will be released by IRS Revenue Procedure in late 2025 for the 2026 tax year. The Iowa state-level dimension does not change with the federal limit; the IA 1040 still uses the federal starting point.
The SECURE 2.0 Roth catch-up rule under Section 603 takes effect for tax years beginning after December 31, 2025. Participants age 50 and older with prior-year wages above $145,000 (indexed) must make catch-up contributions on a Roth basis only. The rule applies to 401(k), 403(b), and 457(b) plans. The IRA catch-up rule under Section 219(b)(5)(B) is not affected by the change.
The Iowa flat tax rate of 3.8 percent under Iowa Code Section 422.5A remains the rate for non-retirement income in tax year 2026. The retirement income exclusion under Iowa Code Section 422.7(31) remains unlimited for filers age 55 or older, disabled, or surviving spouses. The inheritance tax repeal under Iowa Code Chapter 450 (as amended by Senate File 619) remains in effect for deaths on or after January 1, 2025.
The federal estate-tax exclusion is set to sunset from the doubled level on January 1, 2026. The pre-sunset exclusion was $13.99 million per individual in 2025. The post-sunset exclusion is projected at approximately $7 million per individual after inflation adjustment.
Because Iowa imposes no state estate tax and repealed its inheritance tax, an Iowa decedent above the post-sunset federal threshold faces federal estate tax only. The Iowa-side liability stays zero. The federal liability for an Iowa-resident gold IRA holder above the post-sunset threshold should be reviewed with an estate-planning attorney.
An Iowa-resident gold IRA participant age 55 or older in 2026 has the most favorable state-tax matrix in the Midwest. The unlimited Section 422.7(31) retirement income exclusion removes the Iowa income tax layer on any IRA distribution. The inheritance tax repeal removes the Iowa death-side tax layer. The federal layer is the same as in every other state.
The state-level shift to zero on retirement distributions means the dealer-selection layer carries the operational weight of the planning decision. The custodian’s depository, fee schedule, in-kind distribution shipping arrangement, and buyback policy determine the quality of the account through retirement and at distribution.
The dealer-side trust signal stack that OPRS uses includes four markers that travel across all 50 states. The markers are listed below.
- Money Magazine Best Overall Gold IRA Company (2022 to 2026)
- Investopedia Most Transparent Gold IRA Company (2022 to 2026)
- BBB A+ Rating with Zero Complaints (accredited since 2014)
- Education-First Process with non-commissioned customer success agents
Get the Augusta company-comparison checklist
The free company-comparison checklist walks through the custodian, depository, distribution-code, and Form 1099-R coding mechanics that an Iowa-resident distribution has to coordinate with. The checklist is the higher-intent asset for screening any single dealer against the four-marker trust-signal stack at the pre-distribution planning moment.
OPRS may receive compensation when readers proceed. Editorial selection is independent. Updated July 2026.
Does Iowa tax traditional IRA distributions at all in 2026?
For tax year 2026, Iowa does not tax traditional IRA or self-directed gold IRA distributions for filers age 55 or older, disabled, or surviving spouses. The retirement income exclusion under Iowa Code Section 422.7(31) is unlimited in dollar amount and has no income-threshold phase-out. The exclusion took effect for tax year 2023 under House File 2317.
For filers under 55, Iowa applies the flat 3.8 percent rate under Iowa Code Section 422.5A to the federally taxable amount of the distribution. Iowa does not impose a state-level early-distribution penalty parallel to federal IRC Section 72(t). The federal 10 percent additional tax under Section 72(t) still applies.
Roth IRA qualified distributions (five-year period satisfied and the participant age 59 and a half or older, or another qualifying event) are federally tax-free and Iowa tax-free. Federally taxable Social Security benefits are excluded from Iowa state income tax for filers age 55 or older under the Section 422.7(31) exclusion.
How does the 55-plus exclusion compare to other state retirement exemptions?
The Iowa Section 422.7(31) retirement income exclusion is unlimited in dollar amount, has no income-threshold phase-out, and uses a simple age gate of 55 (or disability or surviving-spouse status). Connecticut, by contrast, caps its IRA distribution exemption at federal AGI thresholds of $75,000 single and $100,000 joint, with a phase-out above. Colorado allows a $24,000 pension and annuity subtraction for filers 65 and older.
The Iowa structure removes the bracket-math layer entirely for qualifying retirees. A 55-plus Iowa filer with a $200,000 IRA distribution pays the same Iowa state tax ($0) as a 55-plus filer with a $20,000 distribution. The Iowa exclusion is one of the most generous retirement income exclusions in any U.S. state.
Does Iowa impose a state-level early-distribution penalty like Wisconsin?
No. Iowa does not impose a state-level additional tax on early IRA distributions parallel to the federal IRC Section 72(t) 10 percent additional tax. Wisconsin imposes a 33 percent state mini-penalty under Wisconsin Statute 71.83(1)(b)6. California imposes a 2.5 percent additional tax under California Revenue and Taxation Code Section 17085.
An Iowa-resident participant who takes a pre-59-and-a-half distribution from a traditional IRA pays the federal 10 percent additional tax. The participant also pays Iowa state tax on the taxable portion at the flat 3.8 percent rate if under 55. The state-level early-distribution penalty layer is zero.
If I move from Illinois to Iowa, when does my Illinois income tax stop?
Illinois state income tax stops when Iowa residency is established and Illinois domicile is broken. The Illinois Department of Revenue uses a multi-factor presumption analysis: physical presence, intent to remain, voter registration, driver’s license, vehicle registration, location of personal effects, and the place of permanent abode.
The federal Pension Source Tax Act of 1996 (4 U.S.C. Section 114) preempts Illinois’s claim on IRA distributions paid after Iowa residency is established. The protection applies to traditional IRA, Roth IRA, 401(k), 403(b), 457(b), defined benefit pension, and self-directed gold IRA distributions. The participant should retain documentation of the move and the date of new Iowa residency.
Illinois itself does not tax most retirement income at the state level under Illinois statute, so the Pension Source Tax Act question rarely creates a real liability for an Illinois-to-Iowa move. The documentation discipline still matters for any audit lookback or partial-year reconciliation in the year of the move.
Are Iowa IPERS pension benefits taxable in Iowa?
No, for filers age 55 or older. Iowa Public Employees Retirement System (IPERS) defined benefit pension payments are excluded from Iowa state income tax under Iowa Code Section 422.7(31) for filers age 55 or older, disabled, or surviving spouses. The exclusion is unlimited in dollar amount with no income-threshold phase-out.
The federal tax treatment under IRC Section 72 applies in full. The federal exclusion ratio applies if the IPERS participant made after-tax contributions during the working years. IPERS reports the federally taxable amount on Form 1099-R Box 2a. Iowa applies the Section 422.7(31) exclusion against the Form 1099-R Box 2a amount on IA 1040 Schedule 1 for a 55-plus filer, reducing the Iowa tax to zero.
Sources cited
- Iowa Department of Revenue
- Iowa Code Chapter 422, Individual Income Tax (Iowa Code Sections 422.5A and 422.7)
- Iowa Code Chapter 450, Inheritance Tax (repealed for deaths on or after January 1, 2025)
- Iowa House File 2317 (2022), Individual Income Tax Reform
- Iowa House File 2526 (2024), Accelerated Flat Tax
- Iowa Senate File 619 (2021), Inheritance Tax Repeal
- IRC Section 72, Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
- IRC Section 72(t), Additional Tax on Early Distributions from Qualified Retirement Plans
- IRC Section 408, Individual Retirement Accounts (Traditional IRA)
- IRC Section 408A, Roth IRA Distribution Rules
- IRC Section 3405, Withholding on Pension and Annuity Distributions
- 4 U.S.C. Section 114, Pension Source Tax Act of 1996
- IRS Publication 590-B, Distributions from Individual Retirement Arrangements
- Iowa Public Employees Retirement System (IPERS)