Part 1 — Direct Answer

Arizona does not tax Roth IRA withdrawals. Qualified Roth IRA distributions are also federal income tax-free, provided the account is at least five years old and you are 59½ or older. This means Arizona retirees who have built up Roth IRA assets can withdraw from those accounts with zero federal income tax and zero Arizona state income tax — making Roth assets the most tax-efficient source of retirement income available in the state.

Part 2 — Detailed Explanation

Arizona's tax treatment of retirement income is more favorable than many retirees realize. The state does not tax Social Security benefits. It follows federal treatment on most retirement income — meaning qualified Roth IRA distributions that are tax-free at the federal level are also tax-free at the state level. Traditional IRA and 401(k) withdrawals are taxed as ordinary income at Arizona's flat 2.5% rate, which is among the lowest in the nation for states that tax income at all.

For Roth IRA withdrawals to qualify for full tax-free treatment, two conditions must be met. First, the account must have been open for at least five years (the "five-year rule"). Second, the withdrawal must be a "qualified distribution" — which requires the account holder to be at least 59½, disabled, or deceased. Roth IRA contributions (not earnings) can be withdrawn at any time without tax or penalty, regardless of age or the five-year rule. Earnings withdrawn before meeting both conditions may be subject to income tax and a 10% early withdrawal penalty.

The strategic implications of Arizona's Roth treatment are significant for retirement income planning. Because Roth withdrawals don't add to your Arizona adjusted gross income, they have no effect on any income-based thresholds in the state tax code. At the federal level, Roth withdrawals are also excluded from the modified adjusted gross income (MAGI) calculation that determines IRMAA Medicare surcharges. This means Roth assets are the ideal source of income for years when you need to manage your IRMAA exposure or fill spending needs without increasing your tax bracket.

Roth conversions — moving money from a traditional IRA to a Roth IRA — are taxable in the year of conversion at both the federal and Arizona levels. The converted amount is treated as ordinary income. The tax paid at conversion is the price of permanently removing those assets from future tax exposure. For Arizona retirees, paying 2.5% Arizona tax today on converted amounts to permanently eliminate future Arizona tax on those assets and their growth is a straightforward trade-off — especially for large pre-tax balances that will eventually generate substantial RMDs.

Roth 401(k) accounts follow similar rules for qualified distributions. Under SECURE 2.0, the requirement for pre-death RMDs from Roth 401(k) accounts was eliminated — aligning Roth 401(k)s with the Roth IRA rules that have never required lifetime RMDs. This makes Roth 401(k)s a more attractive accumulation vehicle and simplifies planning for those with access to a Roth 401(k) option at work.

Part 3 — What This Means for You

For Arizona pre-retirees with the opportunity to build Roth assets — either through direct contributions or through Roth conversions during a lower-income window — the combination of no federal tax and no Arizona state tax on qualified distributions makes Roth the most valuable account type available. A dollar in Roth is worth more than a dollar in a traditional IRA in retirement because no portion of it will ever be subject to income tax again.

For retirees already in retirement, the tax-free status of Roth withdrawals creates a powerful income management tool. In years when other income sources push you toward an IRMAA tier or a higher tax bracket, drawing from Roth rather than from a traditional IRA keeps your total taxable income lower without reducing your actual purchasing power. Roth assets are the flex account in a well-structured retirement income plan.

Part 4 — Common Mistakes and Misconceptions

• The most common mistake is confusing Roth contribution withdrawals with Roth earnings withdrawals. Contributions can always be withdrawn tax-free and penalty-free. Earnings have conditions. Many retirees don't know which dollars in their Roth account are contributions versus earnings, which can lead to unexpected tax consequences on early or non-qualified distributions.
• The second mistake is neglecting the five-year rule when rolling a Roth 401(k) to a Roth IRA. If the Roth IRA receiving the rollover is a new account, the five-year clock may restart — affecting the qualified distribution timeline. Existing Roth IRA accounts with an established five-year history are not affected.
• The third mistake is holding Roth assets too conservatively. Because Roth assets grow tax-free and don't require lifetime RMDs, they have the longest effective time horizon in a retirement portfolio. Holding Roth assets in bonds or money market funds while holding equities in taxable accounts inverts the optimal asset location strategy.