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Retiring? These States Won’t Tax Your Distributions

Posted on November 28th, 2022
States Won’t Tax Your Retirement

It can be difficult to afford retirement, especially when your retirement income is taxed.

In addition to taxing Social Security benefits, the federal government taxes income from 401(k) retirement plans, traditional IRAs, and pensions. Additionally, most states tax retirement income to some extent. A dozen states, however, do not tax 401(k)s, IRAs, or pensions, which are the most common types of retirement income.

Listed below are some highlights of how these funds are handled by those 12 states.

Retirement Income Tax Basics

Before going any further, let’s quickly cover the basics of retirement income taxes.

Federal income taxes may be due on most retirement income. These include Social Security benefits, pensions, and distributions from IRAs and 401(k)s. There are some exceptions, such as withdrawals from Roth IRAs and Roth 401(k)s. It is the taxpayer’s responsibility to pay federal income taxes on Roth contributions before they are made. If you reach the age of 59 ½, you can withdraw these contributions and any investment gains without paying federal income taxes.

In terms of how states will tax your income, the situation is more complicated. Most states don’t tax retirement income or other income at all, so retirement income is tax-free. Social Security benefits are generally exempt from taxation in most states. There are some others who exempt pensions and retirement account distributions as well. When it comes to taxing retirement income, most states use a mix of approaches.

Let’s take a closer look at the states that don’t tax retirement income now that you know how retirement taxes work at the state level.

1. Alaska

There are affordable housing options in Alaska, and the cost of living is competitive. Even though the state has harsh winters and is shrouded in darkness for six months of the year, its wildlife reserves and parks are incredible. I do admit that it’s beautiful, but not everyone will enjoy it.

Alaska has no state income or sales tax. Suffice it to say this is a great way to stretch your retirement savings. But that’s not all. You even get paid to live here.

Known as the Permanent Fund Dividend, Alaska’s incentive program dates back to 1976. How much does it pay to live in the Last Frontier? Alaskans have been eligible for up to $1,600 in the past, and in 2021 it was $1,114.

  • Social Security Benefits. Alaska doesn’t tax Social Security benefits like most states.
  • Income Tax Range. Not applicable (no income tax).
  • Inheritance and Estate Taxes. Inheritance taxes and estate taxes are not applicable in Alaska.

2. Florida

For retirees, Florida is the perfect place to live. The reasons for this are obvious. The state has a warm climate, plenty of sunshine, sandy beaches, and a wide range of golf courses.

Despite its popularity, the Sunshine State isn’t for everyone. It is important to keep in mind that Florida is a tourist state, so you will have to deal with the constant influx of visitors. Summer can be unbearable for some people, even if they are leaving winter behind.

With the second-largest elderly population in the nation, Florida is an ideal place for seniors to connect with each other. And there are plenty of activities for entertainment in this culturally diverse state.

Imagine not paying taxes on your 401(k), IRA, or pension income. In Florida, there’s no income tax, so you get that.

  • Social Security Benefits. Social Security benefits are not taxed in Florida.
  • Income Tax Range. Not applicable (no income tax).
  • Inheritance and Estate Taxes. Florida does not impose inheritance or estate taxes.

3. Illinois

Despite its temperate summers and cold winters, Illinois is one of the most culturally diverse states in the country. Retirement distributions are not taxed in the Land of Lincoln. Interestingly, it’s the only Midwestern state that doesn’t tax 401(k), IRA, and pension income. However, pensions and 401(k)s can only be tax-free if they come from qualified employee benefit plans.

The savings you make on taxes might be offset by high property taxes and rising living costs. As a matter of fact, Illinois is among the least tax-friendly states for retirees. Further, the property taxes there are relatively high, making homeownership more expensive. It is more worthwhile to own property in Illinois, however, since your home will most likely gain value.

  • Social Security Benefits. Social Security benefits are also not taxed in the Prairie State.
  • Income Tax Range. Illinois has a relatively low, flat-income tax rate of 4.95%.
  • Inheritance and Estate Taxes. Illinois imposes an estate tax on estates valued at over $4 million.

4. Mississippi

The cost of living in Mississippi is among the lowest in the country. Buying a home in this state isn’t taxed, and property costs are low, so you can maximize your budget. Some might be turned off by the hot and humid summers. There won’t be much snow to worry about, however. You are less likely to be affected by hurricanes if you choose to live in the northern end of the state.

The Magnolia State won’t tax retirement income if you’re over 59 ½. If you retire early, it will take its share of your 401(k), IRA, or pension income

There are better places to live if you are looking for a state with a lot of entertainment and excellent healthcare. A lack of diversity and above-average poverty are also problems in the state.

  • Social Security Benefits. Social Security benefits are not taxed in Mississippi.
  • Income Tax Range. Those with taxable income between $5,001 and $10,000 will pay 4%, while those with income above $10,000 will pay 5%. From 2023 onward, there will be no tax on the first $10,000 of taxable income (just a 5% tax on income over $10,000). Moreover, the tax rate on income over $10,000 will be lowered to 4.7% in 2024, 4.4% in 2025, and 4% in 2026 and beyond.
  • Inheritance and Estate Taxes. Mississippi residents don’t have to worry about inheritance or estate taxes.

5. Nevada

In Nevada, retirement income from 401(k)s, IRAs, or pensions and income taxes are not taxed. Additionally, Reno and Las Vegas contribute to the cultural significance of the state.

Additionally, there are no severe weather events or cold winters in most of the Silver State. The state is arid and hot. So residents should conserve water and be more concerned about paying high property taxes. Nevada also offers above-average healthcare services for seniors.

  • Social Security Benefits. Nevada recipients are winning big. The reason is that Social Security benefits in Nevada are tax-free.
  • Income Tax Range. Not applicable (no income tax).
  • Inheritance and Estate Taxes. Nevada doesn’t have them.

6. New Hampshire

New Hampshire makes a great retirement destination for people who prefer a secluded home in a beautiful setting. As the leaves change in the fall, the state is especially beautiful. On the flip side, New England’s harsh winters can affect the Granite State.

A very low crime rate and cultural relevance make New Hampshire one of the nation’s most appealing states. The state also offers quality healthcare for seniors and doesn’t tax retirement income from your 401(k) plan, IRA, or pension.

  • Social Security Benefits. Social Security benefits are not taxed in New Hampshire.
  • Income Tax Range. For 2022, interest and dividends are taxed at a flat 5% rate. It will be phased out and repealed in 2027, however.
  • Inheritance and Estate Taxes. Neither inheritance nor estate taxes are collected in New Hampshire.

7. Pennsylvania

In Pennsylvania, you won’t be sheltered from the cold during the winter. However, there is a low crime rate and high-quality healthcare available here. In addition to being culturally diverse, Pennsylvania has a lot of historical significance as well.

What is the main downside? During the winter, the Keystone State is often hit with frigid temperatures and heavy snowfall. The good news is that pension income is not taxed in Pennsylvania if it is received from an employer-sponsored retirement plan. There is no tax on payments from 401(k)s or IRAs unless you retire early.

  • Social Security Benefits. The state of Pennsylvania does not tax Social Security benefits.
  • Income Tax Range. There is a low, flat-income tax rate of 3.07% in Pennsylvania. It is also possible for municipalities and school districts to tax your income.
  • Inheritance and Estate Taxes. Pennsylvania taxes inheritances based on a recipient’s relationship to the deceased, as well as their age.

8. South Dakota

As a result of low property costs, taxes, and living expenses, South Dakota is becoming an attractive destination for retirees. You don’t have to pay income tax or tax on your retirement savings (401(k), IRA or pension).

There are several national parks here, including Mount Rushmore, Sioux Falls, and Badlands. So, it’s no surprise that a significant portion of the state’s economy is devoted to tourism.

South Dakota is an affordable place to retire for explorers who like to stay in touch with nature. However, in addition to the harsh winters, the state lacks access to high-quality healthcare.

  • Social Security Benefits. Social Security benefits are not taxed in South Dakota.
  • Income Tax Range. Not applicable (no income tax).
  • Inheritance and Estate Taxes. There are no inheritance or estate taxes in the Mount Rushmore State

9. Tennessee

In recent years, Tennessee has become a favorite for retirees who fled harsh northern winters in Florida for a more temperate climate and lower living costs in Tennessee. Cheap real estate and a lower cost of living make it one of the most affordable places in the country. Additionally, all residents of the state are eligible to receive tax relief.

Even better? Retirees in the Volunteer State are not taxed on their 401(k), IRA, or pension income since the state does not have an income tax.

Tennessee’s tourism industry, however, is just as thriving as Florida’s. The chances of meeting someone from out of state are just as high as that of meeting someone from within the state. Among the most popular travel destinations are Chattanooga, Knoxville, Memphis, and Nashville.

  • Social Security Benefits. Retirees in Tennessee are also exempt from state taxes on their Social Security benefits.
  • Income Tax Range. Not applicable (no income tax).
  • Inheritance and Estate Taxes. There are no inheritance or estate taxes in Tennessee.

10. Texas

Texas has low property taxes, making it another affordable state to live in. Also, there is no personal income tax in the Lone Star State, and retirement income is not taxed. There are numerous forts, missions, and mansions to explore, such as the NASA Space Center and the Alamo.

Although it’s a cheap place to live, Texas isn’t known for having quality healthcare systems. Additionally, its political and environmental climate may turn off potential Texans.

  • Social Security Benefits. Since Texas has no income tax, your Social Security benefits aren’t taxed either.
  • Income Tax Range. Not applicable (no income tax).
  • Inheritance and Estate Taxes. Texas does not impose inheritance or estate taxes.

11. Washington

There are many culturally diverse cities in Washington, as well as a temperate climate. It is easier for seniors to access excellent healthcare services, and their life expectancy is higher. The quality of nursing homes in Washington is also among the best in the nation.

There is no income tax in the Evergreen State. Therefore, you will not have to pay state taxes on your 401(k), IRA, or pension income. However, the state is somewhat expensive to live in. For some, Washington may be less attractive for retirement due to its high property values and high crime rate, as well as its frequent rainstorms for retirees.

  • Social Security Benefits. Benefits from Social Security are also exempt from taxes in Washington.
  • Income Tax Range. Not applicable (no income tax). In 2022, Washington will impose a 7% tax on sales and exchanges of certain long-term capital assets whose profits exceed $250,000 annually. There is, however, a constitutional challenge to this capital gains tax. Despite a lower court ruling, the tax is expected to be appealed.
  • Inheritance and Estate Taxes. Every state has its flaws. Washington taxes estates valued at more than $2.193 million in 2022 — the exemption threshold is adjusted annually for inflation. However, there is no inheritance tax in the state.

12. Wyoming

The natural beauty of Wyoming makes it an excellent retirement destination for those who are looking to get back to nature. As a result of the state’s sprawling national parks, low cost of living, and cultural diversity, senior citizens have been moving there from other states in recent years.

Winters in the state can be quite snowy. Nevertheless, they aren’t always as severe as those in the Northeast. Wyoming also has one of the lowest crime rates in the United States, and it’s affordable to purchase a home there. Moreover, there are no taxes on payments from 401(k) plans, IRAs, or pensions in the Cowboy State.

  • Social Security Benefits. As for your Social Security check, Wyoming won’t take a cut.
  • Income Tax Range. Not applicable (no income tax).
  • Inheritance and Estate Taxes. There are no inheritance or estate taxes in Wyoming as well.

It’s Not All About Taxes

A state with low-income taxes may have higher property or sales taxes than a high-income one. While Illinois does not tax retirement income, its sales and property taxes are among the most expensive in the country. It is possible that other states with low taxes have fewer programs that might be helpful to you, such as senior centers and transportation services.

It is ultimately a matter of budget and happiness where you live in retirement. For instance, in states with high taxes, you may think the extra taxes are worth being nearby if your child or grandchild lives there.


Which states don’t tax my 401K, social security benefits, and military retirement pay?

Some states do not impose state income taxes. They include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. The state of New Hampshire does not have an income tax as well

Are there any states that do not tax income?

There is no state income tax in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Do you still have to pay federal taxes?

It is likely that you will have to pay federal taxes during your retirement years, regardless of where you live. Depending on your filing status (individual, married with a joint return, or married with separate returns) and your income level, the Internal Revenue Service (IRS) requires taxes to be paid on a portion of your Social Security benefits.

Your pension, 401(k), and IRA income is also subject to Uncle Sam’s tax. There are a few exceptions, however, including Roth 401(k) plans and Roth IRAs. The money you contribute to these types of retirement accounts grows tax-free after you pay taxes on your contributions.

Do you pay taxes on Social Security?

The federal government taxes some Social Security recipients. Nevertheless, taxpayers do not pay taxes on more than 85 percent of their Social Security benefits. You must pay taxes on your benefits if you file a federal tax return as an individual and your “combined income” exceeds $25,000.


John Rampton

John Rampton

John Rampton is an entrepreneur and connector. When he was 23 years old, while attending the University of Utah, he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months, he had several surgeries, stem cell injections and learned how to walk again. During this time, he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine and Finance Expert by Time. He is the Founder and CEO of Due.

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