Which 13 States Don't Tax Retirement Income?

You may retire from work, but you'll never quite retire from paying taxes. How much you'll pay once you retire depends on the state where you reside. Here are 13 states that don't currently tax retirement income.

1. Alaska

No one in Alaska pays state taxes because it doesn't levy an income tax. That means that you won't face a state tax bill for Social Security benefits, pension income, or 401(k) or IRA distributions.

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Here's something to keep in mind if you have a sudden urge to move to the Last Frontier, though: Local sales taxes in Alaska can reach nearly 8% in some areas, so you'll need to be careful about exactly where you settle down.

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2. Florida

Florida is known for some pretty sweet tax breaks. For example, there's no state tax on:

• 401(k), 403(b), or IRA distributions.
• Pension distributions.
• Estate or inheritance tax.
• Some essentials, like groceries.

Two points worth considering if you're considering a move there: The state has been hit with ever-rising insurance rates, and if you hope to get around via public transportation, your options may be limited.

3. Illinois

Illinois has a relatively reasonable flat income tax rate of 4.95%. Even better, it doesn't tax retirement income. That means your Social Security benefits, 401(k) and IRA distributions, and pension are exempt from state taxes.

While retirees get a break, the state does tax investment income, estates worth more than $4 million, and groceries. Also, the sales tax is one of the highest in the country.

4. Iowa

Social Security benefits are not taxed, regardless of age. Also, the state doesn't tax retirement income for those 55 and older. This includes distributions from 401(k), 403(b), and 457(b) plans; SEP plans, and SIMPLE retirement plans.

5. Mississippi

There's a good reason Mississippi is considered tax friendly. The Hospitality State exempts Social Security benefits, pensions, and 401(k) and IRA distributions from taxes.

While you'll pay a flat state income tax of 4.4% on other types of income exceeding $10,000, there is no estate or inheritance tax in Mississippi, and the income tax rate is scheduled to drop to 4% next year.

6. Nevada

Any wages, retirement, or investment income you earn while living in Nevada is tax-free. Property taxes aren't bad, but the sales tax is 6.85%, higher than you'll find in most other states.

7. New Hampshire

Like Alaska, New Hampshire doesn't levy regular income tax. That means you won't owe taxes on Social Security benefits, pensions, or IRA and 401(k) distributions. The cherries on top? The dividend and interest taxes were repealed earlier this year, and New Hampshire is one of the few states with no sales tax.

8. Pennsylvania

Pennsylvania offers an attractive flat income tax rate of 3.07%, and you won't pay a penny on IRA and 401(k) distributions, Social Security, or pensions. If you're considering a move, you might want to keep the state's heavy inheritance tax in mind, though.

9. South Dakota

South Dakota is more than Badlands National Park and Mount Rushmore (although those are pretty great features). The state doesn't tax personal income, meaning your retirement income is 100% safe from state taxes. You won't have to pay taxes on income from dividends or interest, either. Plus, South Dakota doesn't collect inheritance or estate taxes.

10. Tennessee

Like many of the states listed here, Tennessee doesn't tax personal income. If you're a resident, that means you can collect your Social Security benefits, pension, and 401(k) or IRA distributions free of state tax.

• Pro: There's no state inheritance or estate tax in Tennessee.
• Con: The sales tax is the second highest in the U.S.

11. Texas

Joining the list of retiree-friendly states, Texas levies no personal income tax, meaning any money you earn on the job, through retirement income, or from an inheritance is tax-free. Where you might get nipped is with the sales tax, which can be quite high depending on where you live.

12. Washington

Washington residents not only have access to some of the most beautiful scenery in the U.S., but they also live in the Evergreen State without paying personal income taxes. While Washington does tax the sale of assets like stocks and bonds (with gains exceeding $250,000 annually), you won't have to pay tax on Social Security, pension income, or 401(k) and IRA distributions.

The fly in the ointment is the combined sales tax in Washington, the fourth highest in the nation.

13. Wyoming

If you live in Wyoming, you don't have to pay state income tax on wages, investment earnings, or any retirement and pension income, including Social Security and military retirement benefits.

In addition to keeping a lid on its state and local sales taxes, there's no tax due on interest and dividend income, personal or corporate income, or inheritances.

Regardless of where you live, keep a close eye on the tax laws in your state, since they're frequently updated.

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