NEW JERSEY RETIREMENT PLANNING
How New Jersey taxes retirement income
New Jersey does not tax Social Security benefits, but it generally taxes pensions and certain retirement-account withdrawals. Depending on your age, filing status and income, retirement income exclusions may reduce the amount subject to New Jersey income tax.
Tax year 2025 | Sources verified October 1, 2026
AT A GLANCE
Start with the income source
- Social Security benefits are exempt from New Jersey income tax.
- Other retirement income may be taxable, partially taxable or excluded under the applicable rules.
- State and federal tax treatment can differ. Review both before comparing the income available for retirement spending.
Does New Jersey tax Social Security benefits?
No. New Jersey does not include Social Security benefits in taxable income. Federal rules are different: depending on income and filing status, up to 85% of benefits may be included in federal taxable income. That is the share of benefits subject to tax, not an 85% tax rate.
For tax year 2025, the federal calculation generally compares half of your benefits plus other income, including tax-exempt interest, with a base amount of $25,000 for single filers or $32,000 for joint filers. Separate-return rules differ, particularly when spouses lived together during the year.
Sources: NJ retirement-income guidance, IRS Publication 915 for 2025
The additional federal deduction available to eligible people age 65 and older for tax years 2025 through 2028 is a separate provision. It does not make all Social Security benefits federally tax-exempt. Its income phaseouts and eligibility requirements also differ from New Jersey’s retirement exclusions.
Sources: IRS deduction for seniors, IRS Publication 915
Which retirement income does New Jersey tax?
Use this comparison as a starting point. The taxable portion and any available retirement exclusion are separate questions.
| Income source | General New Jersey treatment |
|---|---|
| Social Security and Railroad Retirement benefits | Exempt. |
| Military pensions and military survivor benefits | Exempt. Civil service pensions are treated differently. |
| Pensions and annuities | Generally taxable, except previously taxed contributions and applicable exclusions. |
| Traditional IRA withdrawals | Previously taxed contributions are excluded; untaxed amounts are taxable, subject to applicable exclusions. |
| Traditional employer-plan withdrawals, including 401(k), 403(b) and 457 plans | Taxable portions must be reported; treatment depends on the plan and contribution history. |
| Qualified Roth IRA distributions | Exempt. Nonqualified distributions have different rules. |
Sources: NJ retirement-income guidance, NJ Retirement Income bulletin, January 2026
Who qualifies for New Jersey’s pension exclusion?
For tax year 2025, you or your spouse/civil union partner on a joint return must be age 62 or older, or disabled under Social Security guidelines, at year-end. New Jersey total income for the entire year must be $150,000 or less.
Swipe the table sideways to compare all filing statuses →
| New Jersey total income | Married/CU couple, joint return | Single, head of household or qualifying surviving spouse/CU partner | Married/CU partner, separate return |
|---|---|---|---|
| $100,000 or less | Up to $100,000 | Up to $75,000 | Up to $50,000 |
| $100,001 to $125,000 | 50% of taxable pension income | 37.5% of taxable pension income | 25% of taxable pension income |
| $125,001 to $150,000 | 25% of taxable pension income | 18.75% of taxable pension income | 12.5% of taxable pension income |
| More than $150,000 | No pension exclusion | No pension exclusion | No pension exclusion |
The dollar caps cannot exceed eligible taxable pension income. The percentages apply to taxable pension, annuity and IRA income, not the account balance or total household income. If only one spouse qualifies, only that spouse’s eligible income can be excluded.
Source: NJ Division of Taxation: Retirement Income Exclusions
What counts toward the retirement-income exclusion limit?
Use New Jersey total income before retirement exclusions, not federal adjusted gross income. For tax year 2025, this is line 27 of the NJ-1040. It includes taxable pensions, wages, interest, dividends and gains, among other reportable income. Exempt Social Security and previously taxed amounts excluded from retirement distributions are not included.
Additional taxable income can move a household into a different exclusion band or above the pension-exclusion ceiling. An exclusion cannot be subtracted first to meet its own income test.
Source: 2025 NJ-1040 instructions: Total Income and Pension/Retirement Exclusion
That is why the amount withdrawn from an account is only part of the planning conversation. We also consider the income that withdrawal adds to the year’s other income.
What is the other retirement income exclusion?
It has two distinct parts.
The unused pension exclusion
Eligible residents age 62 or older may use an unclaimed exclusion against other income. For 2025, total income must not exceed $150,000, and combined wages, net business profits, partnership income and S corporation income must not exceed $3,000. Worksheet D determines the amount; part-year residents use Worksheet E. On joint returns, only a qualifying spouse’s income can be excluded.
Source: 2025 NJ-1040 instructions: Other Retirement Income Exclusion
The special exclusion
A separate exclusion may apply at age 62 or older when a person, and both spouses on a joint return, cannot receive Social Security or Railroad Retirement benefits but would have qualified through full participation. Delaying benefits does not qualify. This exclusion can apply even above $150,000; it is separate from the pension exclusion. Eligibility needs individual review.
Why can IRA withdrawals be taxed differently in New Jersey?
New Jersey does not allow the federal deduction for traditional IRA contributions. Previously taxed contributions are not taxed again when withdrawn, while untaxed amounts are taxable. Employer-plan rollovers can contain untaxed funds, so an IRA’s balance is not necessarily all previously taxed contributions.
Keep contribution, rollover and withdrawal records available for your tax professional. A Roth conversion also requires identifying amounts not previously taxed by New Jersey; qualified Roth withdrawals and conversions are different transactions.
Source: NJ Retirement Income bulletin: IRA Contributions, Withdrawals and Rollovers
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
How do these rules fit into retirement income planning?
A retirement income plan connects spending needs with the accounts and benefits available to fund them. Tax treatment is one part of that conversation, alongside the timing of income and other decisions affecting your household.
Questions to bring to your tax professional include:
- Which parts of our retirement income are taxable in New Jersey and federally?
- Do our records identify previously taxed retirement contributions?
- Are we eligible for a retirement income exclusion?
- How would an additional withdrawal affect our income for the year?
- If we moved during the year, which residency rules apply?
At Retirement Refined, we coordinate retirement income and tax planning as part of the broader financial plan. Individual tax questions belong with a qualified tax advisor.
Specific individualized tax advice not provided. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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By Paul Levin, CFP®, ChFC®, RICP®*, TPCP®
Managing Principal, Retirement Refined
*RICP® conferred by The American College.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a Registered Investment Advisor.
Sources were verified October 1, 2026. Figures and return references in this guide apply to tax year 2025. Tax rules can change, and part-year residency requires separate review.
