Which 13 States Don't Tax Retirement Income?

Do you want to keep more of your money in retirement? While it's not going to be a viable option for everyone, simply moving from one state to another could help.

A handful of states don't tax retirees' typical sources of income, like distributions from retirement accounts or payments from pension plans. Here's what you need to know.

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13 states that don't tax retirement income

Just so there's no confusion, while some states don't tax retirement income, you're still subject to federal taxation no matter where you live in the U.S. Since federal tax bills tend to be considerably larger than state-based tax bills, simply relocating won't necessarily produce a huge fiscal benefit.

Still, if you live in a state that taxes all forms of personal income, living in one that doesn't has the potential to meaningfully beef up the amount of post-tax income you'll be able to keep for yourself.

To this end, there are nine U.S. states that currently don't tax retirement income because they don't impose personal income tax on any resident's income. Instead, they generate needed revenue in other ways, like through sales taxes or business taxation. These nine states are:

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

But weren't there supposed to be 13? That's right, and there are!

There are four more states that tax workers' wage-based incomes but specifically exempt retirement income from most ordinary sources like IRAs, 401(k) accounts, and pension plans. Each of these four states have qualification rules for these exemptions, but the vast majority of retirees will qualify. These states are:

• Illinois
• Iowa
• Mississippi
• Pennsylvania

It's also worth adding that, while most states do tax most forms of a typical retirees' income, several of them offer reasonably generous tax breaks to their retirement-aged residents. You'll just have to check a specific state's rules on this matter if you've got one in mind.

On this note, you'll also be glad to learn that most -- although not all -- states don't tax Social Security payments. The states that currently do tax this income are:

• Colorado
• Connecticut
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont

(Note: In West Virginia, this tax is being phased out. For tax year 2025, 65% of benefits will be exempt from taxes. Luckily, for tax year 2026, it will be phased out completely.)

Even so, most of the eight states mentioned above that tax Social Security payments still provide tax breaks that will meaningfully reduce the total Social Security tax burden on most of these retired taxpayers.

Not the only matter to consider

The idea of reducing your total tax bill -- even just modestly -- is appealing. Just keep the bigger picture in mind before making a major move.

Your state-based income tax liability might go away, but you'll still owe taxes on real estate or vehicles and likely be paying sales tax of some sort no matter where you live. Real estate and rent prices in several low- and no-tax states have also soared of late, potentially negating the net upside of living somewhere else.

Nevertheless, assuming all of your other costs of living would be about the same (or even lower), a strategic move to somewhere new isn't a bad idea to entertain. That's particularly true if your retirement income is above average and/or you live in a high-tax state.

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