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It's True: These 13 States Don't Tax Retirement Income

Source The Motley Fool

You spend your entire working life saving and investing for retirement. But once you clock out for the last time, the game changes. Now, it's about stretching your nest egg for as long as you need it. Taxes are a part of life, but that doesn't mean you shouldn't try to minimize your tax bill.

Each U.S. state taxes its residents differently, including 13 that don't tax retirement income at all.

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Factors such as location, the real estate market, and other taxes at the state or local levels can impact your cost of living from state to state. But if you want to help stretch your retirement savings as much as possible, income tax laws could affect where you might want to live.

Below is an overview of how different U.S. states tax your retirement income as of 2025.

8 states don't tax your retirement income whatsoever

Your retirement income may come from multiple sources, including retirement accounts such as a 401(k) or IRA, a pension, or Social Security. Or, you might generate investment income from a brokerage account, which could be dividends, interest, or capital gains when you sell an asset.

These states have no income tax of any kind:

Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Wyoming

New Hampshire had previously taxed income from dividends and interest, but officially repealed this tax as of January 1, 2025. Therefore, residents will no longer pay this tax starting with the current tax year.

1 state with a minor exception

Washington

Washington levies a 7% income tax on capital gains exceeding a certain threshold ($270,000 for the 2024 tax year). Other than that, there are no state income taxes to speak of.

These 4 states don't tax retirement income, but do tax other types

A small handful of states tax earned and/or investment income, but exempt income from retirement accounts and Social Security benefits:

Illinois
Iowa (ages 55 and older)
Mississippi
Pennsylvania

These states do not tax retirement income in a practical sense; however, they may tax nonqualified retirement income, such as distributions taken from a pension, 401(k), or other retirement plan before the required age.

What about Social Security?

Unfortunately, most Americans don't save as much as they should for retirement. The typical U.S. household has just $200,000 saved for retirement at age 65.

Millions of retirees depend on Social Security benefits for survival. Fortunately, Social Security is exempt from state income taxes in most states, 41 to be precise:

Alabama
Alaska
Arizona
Arkansas
California
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
Missouri
Nebraska
Nevada
New Hampshire
New Jersey
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Virginia
Washington
West Virginia
Wisconsin
Wyoming

Washington, D.C., is not technically a state, but it's part of the above group.

On the other hand, Social Security is subject to income taxes in nine states. Those are the states of Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. West Virginia is phasing out its income tax on Social Security and will join the above list after the 2025 tax year.

And pensions?

Pensions are not as prevalent in the private sector as they once were, but they remain a vital retirement vehicle for government employees and many others. Fortunately, 15 states do not tax pension income, although they may tax income from other sources, including certain retirement accounts. Those states are:

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

Distributions from some other retirement accounts are subject to state income tax in Alabama and Hawaii.

The fine print and federal taxes

The tax code is complex, and people fund their retirements in various ways. Individuals must learn how state income tax laws apply to their financial situation. Living in a state with income taxes does not guarantee that you will pay taxes on your retirement income. For instance, some states that tax Social Security benefits only do so beyond certain income limits.

Additionally, state and federal income taxes are separate matters entirely. Your tax bill could be lower in one state versus another, but federal tax laws apply no matter which state you call home.

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The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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