States That Don’t Tax Retirement Income

State governments typically impose state taxes on retirement income as a source of revenue to fund various state programs. However, not all states have a state income tax, and some states may tax some, all or none of retirement income. Knowing which states do and don’t tax certain types of retirement income could be beneficial to saving you money in the long run.

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  • Written By
    Ebony J. Howard, CPA

    Ebony J. Howard, CPA

    Accounting, Personal Finance and Income Tax Consultant

    Ebony J. Howard is a certified public accountant and freelance consultant based in Atlanta, Georgia. Ebony has a deep knowledge of the financial landscape and a background in accounting, personal finance and income tax planning and preparation.

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    Lamia Chowdhury
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    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial editor at Annuity.org. Lamia carries an extensive skillset in the content marketing field, and her work as a copywriter spans industries as diverse as finance, health care, travel and restaurants.

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  • Financially Reviewed By
    Thomas J. Brock, CFA®, CPA
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    Thomas J. Brock, CFA®, CPA

    Investment, Corporate Finance and Accounting Professional

    Thomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.

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  • Updated: May 21, 2024
  • 9 min read time
  • This page features 24 Cited Research Articles

Key Takeaways

  • Retirement income is income from sources such as retirement plans or profit-sharing plans, traditional or Roth IRAs, Social Security, pensions, annuities and insurance contracts.
  • Each state has different tax rules and rates on which they tax income; some impose a flat tax on all income, others may impose a progressive tax based on the taxpayer’s level of income.
  • The advantages of living in a state that doesn’t tax retirement income include more disposal income for other expenses, the ability to stretch your retirement savings and an improved standard of living.
  • The disadvantages of living in a state that doesn’t tax retirement income may include higher sales tax or property tax, lower state funding for schools and infrastructure, and a lack of state services and programs.

What Types of Retirement Income Can Be Taxed?

Retirement income comes from retirement plans or profit-sharing plans, traditional or Roth IRAs, Social Security, pensions, annuities and insurance contracts. This type of income may be fully or partially taxed depending on state tax rules. Each state has different rules regarding the tax treatment of retirement income, so it is important for retirees to understand their state tax rules.

When you receive distributions or withdrawals from tax-deferred retirement accounts, such as 401(k)s, 403(b)s, traditional IRAs, annuities, pensions, and Social Security benefits, some or all of the income may be taxed. That is, unless you live in a state that does not have income tax.

Annuity income may also be taxed if the income is from a tax-deferred annuity. Alternatively, since Roth IRAs are funded with after-tax money, the income is not taxed upon withdrawal. The taxation of military retirement income is dependent upon the state, in which some states don’t tax.

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States Without Income Tax

State income tax is a tax the state government imposes on the personal income of its residents and non-residents who have income sources from that state. Most states levy this tax on taxpayers earned and unearned income sources as a means of funding state government revenue.

However, some states are more generous than others and have no tax on income at all. Each state has different tax rules and rates on which they tax income, some impose a flat tax on all income or a progressive tax based on a taxpayers level of income. When planning for retirement, it’s important to consider a state’s taxation on income as this affects your future budget and financial resources.

In 2023, these 9 states have no income tax:

  1. Alaska
  2. Florida
  3. Nevada
  4. New Hampshire (earned wages are not taxed, but interest and dividends are taxed)
  5. South Dakota
  6. Tennessee
  7. Texas
  8. Washington (only capital gains of high earners are taxed)
  9. Wyoming

States That Don’t Tax Social Security Income

Social Security benefits are generally taxable at the federal level up to 85%, depending on how much total income sources you have. In determining the amount of tax on your Social Security income, most states follow federal rules or have their own tax calculations.

However, some states exempt all Social Security benefits from state tax or will only partially tax benefits. Since there’s a possibility you may be taxed on the federal end when you start collecting Social Security benefits, its best to consider states that are more lenient on Social Security to help keep money in your pockets.

In 38 states, Social Security benefits are exempt from being taxed.

States That Don’t Tax Social Security Income
1. Alabama 21. Nevada
2. Alaska 22. New Hampshire
3. Arizona 23. New Jersey
4. Arkansas 24. New York
5. California 25. North Carolina
6. Delaware 26. North Dakota (as of Jan. 1, 2021)
7. Florida 27. Ohio
8. Georgia 28. Oklahoma
9. Hawaii 29. Oregon
10. Idaho 30. Pennsylvania
11. Illinois 31. South Carolina
12. Indiana 32. South Dakota
13. Iowa 33. Tennessee
14. Kentucky 34. Texas
15. Louisiana 35. Virginia
16. Maine 36. Washington
17. Maryland 37. Wisconsin
18. Massachusetts 38. Wyoming
19. Michigan
20. Mississippi
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States That Don’t Tax Pension Income

Like any tax-deferred investment, you pay income tax on the withdrawals, including those from pensions. Taxes on pension income varies by state — some states don’t tax pension income while others do. 

15 States That Don’t Tax Pensions

  1. Alabama
  2. Alaska
  3. Florida
  4. Hawaii
  5. Iowa (as of Jan. 1, 2023)
  6. Illinois
  7. Mississippi
  8. Nevada
  9. New Hampshire
  10. Pennsylvania
  11. South Dakota
  12. Tennessee
  13. Texas
  14. Washington
  15. Wyoming

States That Don’t Tax Retirement Accounts

Income received as distributions or withdrawals from retirement accounts, such as 401(k), 403(b), traditional IRA, and tax-deferred annuities is generally subject to tax. A Roth IRA or Roth 401(k), however, is not subject to tax upon withdrawal since the contributions were made with after-tax dollars, assuming the withdrawal meets IRS requirements. Some states do not levy a tax on any retirement accounts.

As of 2023, the following 12 states do not tax retirement accounts:

  1. Alaska
  2. Florida
  3. Illinois
  4. Iowa (as of Jan. 1, 2023)
  5. Mississippi
  6. Nevada
  7. Pennsylvania
  8. South Dakota
  9. Tennessee
  10. Texas
  11. Washington
  12. Wyoming

States That Don’t Tax Thrift Savings Plan Income

Generally, you pay taxes on a tax-deferred Thrift Savings Plan (TSP), which allows federal employees to save part of their income for retirement and take distributions from the account as regular income.

The distributions from a TSP account are taxed at your ordinary income tax rate. When planning for retirement, its best to consider the lifestyle you want to live and base the money you take from your TSP on your income needs to accomplish those goals.

The following 12 states don’t tax Thrift Savings Plan income:

  1. Alaska
  2. Florida
  3. Illinois
  4. Mississippi
  5. Nevada
  6. New Hampshire
  7. Pennsylvania
  8. South Dakota
  9. Tennessee
  10. Texas
  11. Washington
  12. Wyoming

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States That Don’t Tax Estates and Inheritances

Some states levy tax on the transfer of money or property at death through inheritance and estate tax. At the federal level, estate tax is imposed on assets over $12.92 million in 2023, however there’s no federal inheritance tax.

States impose inheritance tax as a percentage on the value of the assets that the beneficiaries receive from a deceased person’s estate. Estate tax is valued based on the total of what is owned by the deceased.

States That Don’t Tax Estates and Inheritances

1. Alabama 18. Nevada
2. Alaska 19. New Hampshire
3. Arizona 20. New Mexico
4. Arkansas 21. North Carolina
5. California 22. North Dakota
6. Colorado 23. Ohio
7. Delaware 24. Oklahoma
8. Florida 25. South Carolina
9. Georgia 26. South Dakota
10. Idaho 27. Tennessee
11. Indiana 28. Texas
12. Kansas 29. Utah
13. Louisiana 30. Virginia
14. Michigan 31. West Virginia
15. Mississippi 32. Wisconsin
16. Missouri 33. Wyoming
17. Montana

States That Don’t Tax Military Retirement Income

At the federal level, military retirement income is generally taxed as a pension; therefore, it is included in income at the ordinary income tax rate. However, there are 28 states that are exempt from tax on military retirement income.

28 states that are exempt from military retirement income:

1. Alabama 15. Mississippi
2. Arizona 16. Missouri
3. Arkansas 17. Nebraska
4. Connecticut 18. New Jersey
5. Hawaii 19. New York
6. Illinois 20. North Carolina
7. Indiana 21. North Dakota
8. Iowa 22. Ohio
9. Kansas 23. Oklahoma (as of 2022)
10. Louisiana 24. Pennsylvania
11. Maine 25. Rhode Island (as of Jan. 1, 2023)
12. Massachusetts 26. South Carolina (as of 2022)
13. Michigan 27. Utah
14. Minnesota 28. Wisconsin

States with Tax Breaks on Retirement Plans and Pensions

Some states offer partial deductions on some or all forms of retirement income. State tax may also apply to retirees of a certain age and retirement income. According to an article from Wolters Kluwer, the following states provide tax breaks to retirement plans and pensions.

Alabama
Beginning in 2023, this state allows the first $6,000 of retirement income to be exempt for anyone over 65 years old.
Arizona
This state allows a $2,500 subtraction from gross income for government retirement income received from uniformed services in the United States.
Arkansas
This state allows a $6,000 retirement income exclusion from the taxable amount from a employer-sponsored private or public pension plan.
Colorado
This state allows a pension and annuity subtraction of $20,000 in taxable income for taxpayers at least 55 but under age 65, and $24,000 for taxpayers who are 65 years of age and older.
Maryland
This state allows taxpayers who are 65 and older or totally disabled a maximum amount of $34,300 pension exclusion to subtract taxable pension and retirement annuity income from federal adjusted gross income.
New York
This state allows a pension and annuity exclusion of up to $20,000 on pension and annuity income included in federal adjusted gross income for those over the age of 59 1/2 or that turn 59 1/2 during the tax year.

But be sure to check your state’s Department of Revenue Website for the most up-to-date information.

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Special Cases

In special cases, some states don’t follow the same rules as other states when it comes to imposing tax on retirement income. The state may tax one type of retirement income, but not the other.

States That Tax Some Retirement Income

Alabama
Taxes withdrawals from retirement accounts, but not pension income or Social Security income.
Hawaii
Taxes withdrawals from retirement accounts, but not Social Security income. This state also fully taxes private pension income, but not public pension income.
Indiana
Taxes withdrawals from retirement accounts and pension income, but does not tax Social Security income.
Montana
Partially taxes Social Security income, but fully taxes withdrawals from retirement accounts and pensions. This state calculates a state-specific exemption amount.
North Carolina
Partially taxes Social Security income, but fully taxes withdrawals from retirement accounts and pensions at a flat income tax rate of 4.75%.

Advantages of Living in a State That Doesn’t Tax Retirement Income

There are some advantages to living in a state that doesn’t tax retirement income. For example, you’ll have more disposal income at your fingertips to use for other expenses such as travel, medical, emergencies and to pursue your hobbies.

Another benefit is you will have the ability to stretch your retirement savings to ensure a sense of security for a longer time.

Last, there’s less stress about your finances, which better improves your standard of living and peace of mind.

Disadvantages of Living in a State That Doesn’t Tax Retirement Income

As there are benefits to living in a state that doesn’t tax retirement income, there are also disadvantages.

For one, most states that don’t tax retirement income often offset this with higher sales taxes and property taxes.

In addition, there’s usually lower state funding for schools and infrastructure due to retirement income not being a source of state tax revenue.

Finally, there’s usually a lack of state services and programs due to funding availability.

Before deciding where to retire, it’s important to research state taxes to understand the implications of how a state taxes your income, since this impacts your future finances. You may already be subject to paying taxes on your income to the federal government, but at least you can ease the burden of your income being taxed by the state government with careful, strategic retirement planning.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: May 21, 2024
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