How retirement income is taxed in New Jersey
New Jersey taxes retirement income at progressive rates up to 10.75%. Here's what that means for your retirement plan and how to manage it.
Retirement tax landscape
Social Security is fully exempt. Retirees 62+ get a combined $75,000/$100,000 retirement income exclusion covering pensions, annuities and IRA withdrawals together, but it phases out in steps and disappears entirely above $150,000 of New Jersey gross income.
Understanding how New Jersey treats each type of retirement income is essential for planning your withdrawals, conversions, and Social Security timing. The interaction between state and federal taxes determines your true after-tax income each year.
The exclusion is not a flat allowance. New Jersey scales it by your total New Jersey gross income, and the percentage applies to your qualifying retirement income rather than to the maximum exclusion amount:
| NJ gross income | Married filing jointly | Single / head of household |
|---|---|---|
| $100,000 or less | Up to $100,000 | Up to $75,000 |
| $100,001 – $125,000 | 50% of qualifying income | 37.5% of qualifying income |
| $125,001 – $150,000 | 25% of qualifying income | 18.75% of qualifying income |
| Over $150,000 | None | None |
One detail does a lot of work here: Social Security is not part of New Jersey gross income, so your benefits do not count toward the $150,000 test. A couple with $40,000 of Social Security and $120,000 of IRA withdrawals is measured at $120,000, not $160,000, and still keeps a partial exclusion.
What's taxed and what's not
Fully exempt from state income tax.
Partially exempt with deductions or exclusions.
Partially exempt or exempt with age requirements.
Qualified distributions are fully exempt at both the state and federal level.
Tax brackets
New Jersey runs seven progressive brackets, with rates from 1.4% to 10.75%. The schedule below switches by filing status; standard deduction is shown beneath each.
| Taxable income | Rate |
|---|---|
| Up to $20,000 | 1.4% |
| $20,000 – $35,000 | 1.75% |
| $35,000 – $40,000 | 3.5% |
| $40,000 – $75,000 | 5.525% |
| $75,000 – $500,000 | 6.37% |
| $500,000 – $1,000,000 | 8.97% |
| Above $1,000,000 | 10.75% |
| Taxable income | Rate |
|---|---|
| Up to $20,000 | 1.4% |
| $20,000 – $50,000 | 1.75% |
| $50,000 – $70,000 | 2.45% |
| $70,000 – $80,000 | 3.5% |
| $80,000 – $150,000 | 5.525% |
| $150,000 – $500,000 | 6.37% |
| $500,000 – $1,000,000 | 8.97% |
| Above $1,000,000 | 10.75% |
| Taxable income | Rate |
|---|---|
| Up to $20,000 | 1.4% |
| $20,000 – $35,000 | 1.75% |
| $35,000 – $40,000 | 3.5% |
| $40,000 – $75,000 | 5.525% |
| $75,000 – $500,000 | 6.37% |
| $500,000 – $1,000,000 | 8.97% |
| Above $1,000,000 | 10.75% |
Strategies to reduce your tax burden
New Jersey's income-tested exclusion reshapes the math: a conversion that pushes New Jersey gross income past a tier boundary can cost far more than its own bracket rate, so size conversions to land under the line.
Roth conversions before retirement. Converting traditional IRA balances to Roth during lower-income years means paying New Jersey tax now at lower rates, then taking tax-free Roth withdrawals later. See the full Roth conversion playbook.
Watch the exclusion cliff. Because the exclusion steps down rather than tapering, a single dollar of extra income at $100,000, $125,000 or $150,000 of New Jersey gross income can cost hundreds or thousands. A married couple at $100,000 owes nothing; the same couple at $100,001 loses half the exclusion outright. If a large conversion would clear $150,000, splitting it across two or more years often keeps a partial exclusion alive in each.
Withdrawal sequencing. The order you draw from different accounts each year matters. Drawing from taxable brokerage accounts before tapping tax-deferred accounts can keep your New Jersey ordinary income lower. Read more in our drawdown sequencing playbook.
Social Security timing. Optimizing when you claim Social Security affects both your federal and state tax picture. See when to start Social Security.
Modeling your retirement taxes
The interaction between New Jersey's tax rules and federal taxes is too complex to estimate by hand. A year-by-year projection shows your actual tax burden for every year of retirement.
Drawdown Arc's projection engine includes New Jersey's full bracket structure, standard deduction, and retirement income exemptions. Set your state to New Jersey and enter your account balances, pension, and Social Security timing: the projection shows your New Jersey state tax alongside federal tax for every year.
State tax modeling is a Pro feature. The free calculator shows your full federal tax projection: upgrade to Pro to add New Jersey (or any of the 50 states + DC) to your model.