States vary widely in the way they tax retirement income, so where you live is an important consideration in financial planning for retirement. Some states don’t levy income states on any sort of retirement income, while others tax IRA and 401(k) distributions, pension payouts and even Social Security payments like ordinary income. Income taxes are just part of the story, however, as some states with low or no income taxes have high property, sales and other taxes. You may also want to consider working with a financial advisor when you’re planning for retirement.
Retirement Income Tax Basics
Most retirement income can be subject to federal income taxes. That includes Social Security benefits, pension payments and distributions from IRA and 401(k) plans. Exceptions include qualified withdrawals from Roth IRA and Roth 401(k) plans. Federal income taxes on Roth contributions are paid before the contributions are made. These contributions, as well as any investment gains, can be withdrawn free of federal income taxes after five years if you have reached age 59 ½.
The situation is more complex when it comes to how states will tax your retirement income. Some states have no income tax at all, so all retirement income is tax-free at the state level. Most states specifically exclude Social Security benefits from taxation. Some others also exempt retirement account distributions and pensions, but most have a mix of approaches to taxing retirement income.
Only eight states tax Social Security in some capacity: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont. Every other state exempts Social Security, but may tax sources such as pensions, 401(k)s, IRAs and other forms of retirement income if retirees’ income exceeds a certain limit.
9 States That Don’t Tax Any Income at All
Nine states have no state income tax on individual income at all. Eight of them – Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming – don’t tax wages, salaries, dividends, interest or any sort of income.
New Hampshire, the ninth state, has no state income tax on wages, salaries, retirement account withdrawals or pension payments. While the Granite State historically has taxed dividends and interest, it will stop taxing these sources starting in 2025. At that time, New Hampshire will join the eight states listed above that do not levy any state income tax.
No state income tax means these states also don’t tax Social Security retirement benefits, pension payments and distributions from retirement accounts. That means retired residents in these states have no worries about paying state income taxes on their income from any source, with the specific exceptions of interest and dividends in New Hampshire.
The rest of the states across the country take a variety of approaches to taxing retirement income. Some tax all retirement income, including Social Security, while others tax all or parts of retirement income.
Which States Don’t Tax Some or All Retirement Income?
The following 32 states exempt certain income from retirement accounts and pensions or only tax a portion of it:
| State | Nontaxable Retirement Income | Partially Taxable Retirement Income |
|---|---|---|
| Alabama | Pension income | 401(k) and IRA income |
| Arizona | None | Pension income (exemptions for certain pension types) |
| Arkansas | None | Pension income (exemption for military pensions) |
| Colorado | None | Pension income |
| Connecticut | None | Pension income / 401(k) and IRA income |
| Delaware | None | Pension income / 401(k) and IRA income |
| Georgia | None | Pension income / 401(k) and IRA income |
| Hawaii | Pension income | None |
| Idaho | None | Pension income (exemptions for certain military and public pensions) |
| Illinois | Pension income / 401(k) and IRA income | None |
| Iowa | Pension income / 401(k) and IRA income | None |
| Kansas | None | Pension income (exemptions for certain state/local and military pensions) |
| Kentucky | None | Pension income (deductions for state, military and private pensions) |
| Louisiana | None | Pension income (exemptions for certain pension types) |
| Maine | None | Pension income (exemptions for military pensions and exclusions for MainePERS benefits) |
| Maryland | None | Pension income (exclusions for certain pension types) |
| Massachusetts | None | Pension income (exemptions for certain public pensions) |
| Michigan | None | Pension income (exemptions for military pensions) |
| Minnesota | None | Pension income (deductions for military pensions) |
| Mississippi | Pension income / 401(k) and IRA income | None |
| Missouri | None | Pension income (exemptions for military and public pensions) |
| Nebraska | None | Pension income (exemptions for military pensions) |
| New Jersey | None | Pension income (exemptions for military pensions) / 401(k) and IRA income |
| New Mexico | None | Pension income / 401(k) and IRA income |
| New York | None | Pension income (exemptions for public and military pensions) |
| North Dakota | None | Pension income (exemptions for military pensions) |
| Oklahoma | None | Pension income (exemptions for military pensions) / 401(k) and IRA income |
| Pennsylvania | Pension income / 401(k) and IRA income | None |
| Rhode Island | None | Pension income (exemptions for military pensions) / 401(k) income |
| South Carolina | None | Pension income (exemptions for military pensions) / 401(k) and IRA income |
| Vermont | None | Pension income (deductions for military pensions) |
| West Virginia | None | Pension income (exemptions for military and certain local pensions) |
States With Small Retirement Tax Requirements
Some states that don’t appear on this list of those that don’t tax retirement income at all are still relatively generous when it comes to letting retirees off the tax hook. For instance, Georgia does not tax Social Security retirement benefits and also provides a deduction of anywhere from $35,000 to $65,000 per person (depending on your age) on all other types of retirement income.
Also, in Pennsylvania, all Social Security benefits and IRA/401(k) income is exempt, and the state does not levy income tax on pension payments for those over 60. Clearly, state taxation of retirement income is somewhat complicated. One of the biggest differences between states is the variety of income caps to qualify for exemptions.
In addition, state taxation of retirement benefits is a moving target. State tax laws change over time. For instance, New Hampshire’s tax on dividends and interest is due to be phased out by 2025. Until then, the tax rate on dividend and interest income in New Hampshire declines every year until it reaches zero.
Bottom Line
Nine states levy no income taxes on retirement income from any source, outside of interest and dividends in New Hampshire. Others offer resident retirees varying degrees of exemptions from taxation on Social Security, retirement account distributions, pension payments and other types of retirement income. Some of the exemptions are generous enough that many retirees in those states won’t pay any state income tax. Details such as the retiree’s income matter and vary by state, so it’s important to check with the state tax office for details before relocating to save on taxes.
Tips for Retirement
- A financial advisor can help you balance the tax considerations and other factors involved in selecting a place to retire. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- There is more to planning a secure and comfortable retirement than avoiding state taxes on retirement income. States may not tax retirement income but have high taxes otherwise. Read more about retirement taxes.
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