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14 States That Don’t Tax Retirement Income 

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Taxes don’t necessarily stop because you’re no longer working. Withdrawals on tax-deferred investments, like retirement plans and pensions, still require you to pay income taxes. Well, in some states, at least.

Which states don’t tax retirement income?

Wyoming, Washington, Texas, Tennessee, South Dakota, Nevada, Florida, and Alaska don’t charge income taxes on your retirement benefits. Some states, such as Alabama, won’t tax your pension but will tax your IRA or 401(k).

This is good information to have as you plan your retirement, as a state’s tax rates can ultimately influence where you choose to live once you quit working.

Keep reading for a breakdown of tax-free states and other states that tax for some retirement accounts and / or types of retirement income, but not others! 

*Please consult your financial advisor or your tax professionals to get the best information and tax advice for your particular situation.

What States Are Tax-Friendly For Retirees?

The states above are just a handful of options you have when deciding where to move to in your golden retirement years.

This section will break down which states tax part of your retirement benefits (or none at all!).

These 2 States Tax Your IRA and 401(k) But Not Your Pension

In Hawaii and Alabama, you won’t have to worry about paying income taxes on your pension income. However, you will have to pay taxes on your 401(k) and IRA.

Some seniors might not mind that so much for the chance to live in beautiful, sunny Hawaii!

These 12 States Don’t Tax Your Individual Retirement Account Or 401(k)

Many states don’t tax a senior’s IRA distributions or those from a 401(k). These states run the gamut across the country, so no matter where you envision retiring to, you can live in your desired environment.

Here’s the full list:

  • Wyoming
  • Washington
  • Texas
  • Tennessee
  • South Dakota
  • New Hampshire
  • Nevada
  • Florida
  • Alaska
  • Pennsylvania
  • Mississippi
  • Illinois

These 9 States Have No State Income Taxes

Moving to any of the states on this list is a safe bet since they don’t charge income taxes on retirement income or any other income.

  • Wyoming
  • Washington
  • Texas
  • Tennessee
  • South Dakota
  • New Hampshire – but only for earned wages (they will tax your dividends and interest payments)
  • Nevada
  • Florida
  • Alaska

These 13 States Don’t Tax TSP Income

Thrift Savings Plan or TSP income refers to an investment and retirement savings plan only available to federal employees.

If you’re receiving TSP income as part of your retirement plan and you don’t wish to pay income taxes on it, the following states don’t charge for TSP:

  • Pennsylvania
  • Mississippi
  • Illinois
  • Wyoming
  • Washington
  • Texas
  • Tennessee
  • South Dakota
  • New Hampshire
  • Nevada
  • Illinois
  • Florida
  • Alaska

These 14 States Don’t Tax Pension Income

If you’re relying primarily on pension income to make your retirement goals happen, you should strongly consider one of these states. None charge taxes on pension income.

  • Pennsylvania
  • Mississippi
  • Hawaii
  • Illinois
  • Alabama
  • New Hampshire
  • Wyoming
  • Washington
  • Texas 
  • Tennessee
  • South Dakota
  • Nevada
  • Florida
  • Alaska

The 26 States That Won’t Tax Military Retirement Income

Which states will tax military retirement is decided at the state level, not by Uncle Sam.

For United States veterans (thank you for your service!) who receive military retirement pay, Turbo Tax reports that the following states won’t tax your pension payments (sadly, though, the federal government still wants their cut):

  • Alabama
  • Arizona
  • Arkansas
  • Connecticut
  • Hawaii
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Louisiana
  • Maine
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • Nebraska
  • New Jersey
  • New York
  • North Carolina
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • Utah
  • Wisconsin

Even though they aren’t included in this list, obviously the states that have no income taxes whatsoever will also not tax your military retirement.

Again, these 9 states are Alaska, Florida, Nevada, New Hampshire (but they will tax your interest and dividend payments), South Dakota, Tennessee, Texas, Washington, and Wyoming.

These 13 States Don’t Tax Social Security Income

Seniors who use social security benefits will be happy to learn that a number of states don’t tax social security payments, including:

  • Wyoming
  • Washington
  • Texas
  • Tennessee
  • South Dakota
  • Pennsylvania
  • New Hampshire
  • Nevada
  • Mississippi
  • Illinois
  • Georgia
  • Florida
  • Alaska 

What State Has The Lowest Tax Burden For Retirees?

You had never realized that some states were so tax-advantageous for seniors. However, you only have to live in one state, and narrowing down your options has proven difficult.

If possible, you’d like to move to the state with the lowest tax burden, so which state is that?

It’s Alaska! 

GOBankingRates put together a list of the best states for retirement taxes, and the frosty state of Alaska topped the list. 

Alaska doesn’t charge income taxes for those over 65 years old. The property tax rate is only 1.02 percent, and the average local and state sales tax is 1.76 percent. You also don’t get taxed on social security. 

Of course, living in Alaska does have its downsides. The state has a higher crime rate than you may expect, it’s very cold for most of the year, and daylight can be sparse in the winter months.

On top of that, Alaska has a high cost of living due to its separation from other states and having to import many things.

If Alaska just isn’t doing it for you, then Wyoming is the second-best state to consider.

According to GOBankingRates, the property tax rate is 0.55 percent, the average local and state sales tax is 5.33 percent, and you don’t pay income taxes or social security taxes. 

Wyoming has a much lower cost of living in comparison, and you’ll experience milder weather than Alaska and more daylight! 

Let’s look at the other three states on the list so you have a top five.

  • Delaware – 5.55 percent income tax for those over 65, 0.58 percent property tax, 0 percent social security tax, 0 percent local and state sales tax
  • Nevada – 0 percent income tax for those over 65, 0.66 percent property tax, 0 percent social security tax, 8.23 percent average local and state sales tax
  • Florida – 0 percent income tax for those over 65, 0.94 percent property tax, 0 percent social security tax, and 7.08 percent local and state sales tax 

What States Don’t Tax Your 401(k) When You Retire?

You spent years contributing to your 401(k) while participating in the active workforce. Now that you’ve retired, you’re of the mindset that you shouldn’t have to pay taxes on that fund.

In some states, you don’t have to! 

These 12 states won’t tax your 401(k) but could charge you for other taxes such as local and state taxes or property taxes:

  • Wyoming
  • Washington
  • Texas
  • Mississippi
  • Illinois
  • Florida
  • New Hampshire
  • Nevada
  • Pennsylvania
  • Tennessee
  • South Dakota
  • Alaska 

The Top 6 Worst States To Retire In For Taxes – Avoid These States! 

We’ve already looked at some states that make for an optimal place for seniors to retire, especially if you’re interested in low or no income tax payments.

Now let’s turn that on its head and review some states that could become very burdensome to seniors when on a limited retirement budget.

New Jersey

New Jersey charges inheritance taxes, a local and state sales tax rate of 6.6 percent, and a state income tax of 1.4 to 10.75 percent depending on your earnings. The state also has high property taxes and a very elevated cost of living.

Just how high? The median property tax rate is $2,257 for each $100,000 of home value!

Kansas

On the other side of the country in Kansas, a retiree will pay a pretty penny to call the state home. 

While you don’t have to pay an inheritance or estate tax, you will pay 8.71 percent in local and state sales tax and a state income tax range of 3.1 to 5.7 percent. The latter tax rate applies to those earning $30,000 on their own or more than $60,000 when filing together.

The high property taxes rub salt in the wound!

Vermont

Also nestled on the east coast, Vermont isn’t a much better choice for retirees than New Jersey.

You can skip the inheritance tax but must pay an estate tax. The local and state sales tax rate is 6.24 percent, and the state income tax rate is between 3.35 and 8.75 percent. The hefty property tax rates do you no favors either.

Connecticut

A third east-coast state to avoid retiring to is Connecticut. To live here, you’re charged estate taxes, a local and state sales tax rate of 6.35 percent, and a state income tax range of three to 6.99 percent.

You’d have to make over a million dollars between you and your partner or $500,000 alone to be charged 6.99 percent on state income taxes, but that’s still a hefty tax rate!

New York

Even if you’re way outside of the Big Apple, New York’s reputation for costliness carries on. Retirees pay estate taxes, a local and state sales tax of 8.52 percent, and a state income tax range of four to 10.9 percent.

The huge tax rates and pricy cost of living eliminate New York as a viable option for a lot of seniors looking to retire.

Iowa

Iowa may seem like a safe place for a retiree to settle down but think again. You’ll pay inheritance taxes and a 6.94-percent local and state sales tax rate.

The upside? The state income tax rate is only 0.33 percent if you make $1,743 in taxable income, but if you bring in $78,435, you could be charged a rate of 8.53 percent.

Retirement Tax Calculator By State

Here is a table of all 50 states and what they tax and don’t tax for retirees, based on the information from Kiplinger:

StateState Income TaxSocial Security Benefits TaxedRetirement Income TaxedProperty Tax RateSales Tax RateEstate Tax or Inheritance Tax
AlabamaYesYesYes0.40%4.0%No
AlaskaNoNoNoNot applicable0.5%No
ArizonaYesYesYes0.60%5.6%No
ArkansasYesYesYes0.90%6.5%No
CaliforniaYesYesYes0.775%7.25%Yes
ColoradoYesYesYes0.46%2.9%No
ConnecticutYesYesYes3.50%6.35%Yes
DelawareNoNoNoNot applicable0%No
FloridaNoNoNoNot applicable6.0%No
GeorgiaYesYesYes0.62%4.0%No
HawaiiYesYesYes0.44%4.4%Yes
IdahoYesYesYes0.60%6.0%No
IllinoisYesYesYes4.95%4.95%Yes
IndianaYesYesYes0.60%7.25%No
IowaYesYesYes0.38%5.70%No
KansasYesYesYes0.49%6.50%No
KentuckyYesYesYes5.00%6.00%No
LouisianaYesYesYes0.45%4.45%No
MaineYesYesYes0.85%5.5%No
MarylandYesYesYes4.75%6.00%Yes
MassachusettsYesYesYes5.1%6.25%Yes
MichiganYesYesYes4.25%6.00%No
MinnesotaYesYesYes0.95%6.875%No
MississippiYesYesYes4.00%7.00%No
MissouriYesYesYes0.57%4.425%No
MontanaYesYesYes0.08%0.02%No
NebraskaYesYesYes0.60%5.50%No
NevadaNoNoNoNot applicable4.6%No
New HampshireNoNoNoNot applicable6.0%No
New JerseyYesYesYes6.07%6.37%Yes
New MexicoYesYesYes2.90%5.125%No
New YorkYesYesYes4.00%4.50%Yes
North CarolinaYesYesYes4.99%4.75%No
North DakotaNoNoNoNot applicable5.0%No
OhioYesYesYes4.79%5.75%No
OklahomaYesYesYes4.50%4.50%No
OregonYesYesYes0.75%7.5%No
PennsylvaniaYesYesYes3.0

**Please note that this information is subject to change, so it is always best to consult with a tax advisor to get the most accurate information for your specific situation.

Books About Retirement Planning

If you want to ensure your retirement is comfortable, it can be helpful to get a few books about retirement planning.

Here are 3 that we recommend here at Senior Safety Advice:

Retirement Planning Handbook: Complete Advice and Opinions to Fully Control Your Finances and Plan your Retirement Successfully

This comprehensive book makes you think about things you may not have considered, such as trying out whether you can live on your retirement budget before you put in your retirement notice.

There are also “To Do Tasks” in each chapter to help you take each step towards a successful retirement.


The Ultimate Retirement Guide for 50+: Winning Strategies to Make Your Money Last a Lifetime

Suze Orman is one of the top financial gurus in the United States, so you know she’s going to have a book filled with information that you can’t retire without!

This book has tons of actionable steps that will put you on the road to a comfy retirement, along with clear directions for how to manage your money in your golden years.


Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success (The Retirement Researcher Guide Series)

This book is nearly 500 pages long, so you know it will help you make sure important things don’t fall through the cracks. It provides a comprehensive look at the many key retirement decisions you’ll need to make to have a comfortable retirement.


Conclusion 

Many states don’t tax retirement income for seniors. You can even live in states that won’t touch your IRA or 401(k). 

When determining a state to retire to, keep in mind factors such as the climate, types of housing, how far you’ll live from family and friends, the cost of living, your access to amenities, and what kinds of entertainment options you’ll have (you know, since you’ll be retired and all)!

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