Maryland Taxes on Pensions, IRAs, and 401(k)s

If you’re retired or planning retirement in Maryland, it’s important to understand how the state taxes different types of retirement income.

Maryland taxes most pension and retirement account withdrawals, but it also offers a pension exclusion that can reduce state tax for qualifying seniors.

You can feel reassured knowing Maryland provides a pension exclusion that may lower taxable retirement income for many retirees.

Maryland Income Tax Overview

Maryland uses a graduated state income tax system. In addition to state income tax, each county and Baltimore City impose a local income tax.

Maryland begins with your federal Adjusted Gross Income (AGI) and applies state-specific subtractions and deductions.

Social Security Benefits

Maryland does not tax Social Security benefits.

Even if part of your Social Security is taxable at the federal level, it is fully exempt from Maryland state income tax.

Example:
If you receive $28,000 in Social Security benefits, that amount is not taxed by Maryland.

Pension Income in Maryland

Maryland taxes pension income as ordinary income, but it offers a pension exclusion for qualifying taxpayers.

Eligible income may include:

• Private employer pensions

• Government pensions

• Federal civil service pensions

• Military retirement pay

The Maryland pension exclusion:

• Applies to taxpayers age 65 or older, or totally disabled

• Allows up to a set maximum exclusion amount

• Is reduced by the amount of Social Security benefits received

This exclusion can significantly reduce taxable pension income.

Example:
A 68-year-old retiree receiving $35,000 in pension income and $20,000 in Social Security may qualify to exclude a portion of the pension income from Maryland tax.

IRA Withdrawals

Traditional IRA withdrawals are taxable in Maryland because they are included in federal taxable income.

However, IRA distributions may qualify for the Maryland pension exclusion if the taxpayer meets age and eligibility requirements.

This includes:

• Regular withdrawals

• Required Minimum Distributions (RMDs)

• Early withdrawals

Roth IRA qualified distributions are generally not taxable because they are not included in federal taxable income.

401(k) and 403(b) Withdrawals

Distributions from 401(k) and 403(b) plans are taxable in Maryland if they are taxable federally.

However, they may qualify for the Maryland pension exclusion if eligibility requirements are met.

Roth 401(k) qualified distributions are generally not taxable at the state level if not taxable federally.

County Income Taxes

In addition to state income tax, Maryland counties impose local income taxes.

These local taxes apply to most retirement income, including pensions and IRA withdrawals.

Your total state and local tax rate depends on your county of residence.

Military Retirement Income

Military retirement pay qualifies for the Maryland pension exclusion and may receive favorable treatment under state rules.

Veterans’ disability benefits are not taxable because they are not included in federal taxable income.

Planning Tips for Maryland Retirees

• Social Security is fully exempt

• Pension income may qualify for the state pension exclusion

• IRA and 401(k) withdrawals are generally taxable

• County income tax increases overall tax exposure

• Monitor total income to maximize the pension exclusion

Strategic withdrawal planning can help reduce Maryland state and local tax liability.

💻 Electronic Filing Recommendation

E-filing your Maryland return is recommended:

• Automatic pension exclusion calculations

• Built-in Social Security exemption

• Proper integration of state and county taxes

• Reduced math errors

• Faster processing

Tax software can apply Maryland-specific retirement rules once your age and income are entered.

Final Thoughts

Maryland taxes pensions, IRA withdrawals, and 401(k) distributions, but offers a pension exclusion that can reduce taxable income for qualifying seniors.

Social Security benefits are fully exempt. Because both state and county income taxes apply, careful retirement income planning can help minimize your overall Maryland tax burden.