What States Do Not Tax Retirement Income? Find Out Now!

by | Mar 29, 2023

If you are a senior planning for retirement, one of your top concerns may be how much of your income will be taxed.

Every state has different laws and regulations governing retirement income taxation, making it difficult to determine what will and won’t be taxed.

Aside from dealing with federal taxes – which typically take between 10-37% of retirees’ incomes each year – many retirees have additional worries about keeping as much of their money as possible no matter where they choose to live.

Whether you want to minimize taxes on Social Security benefits or ensure that the right portions of pension payments stay in your pocket instead of going toward the government, this blog post answers all your questions regarding states that exempt retirement income taxes.

Read on now to find out more!

Retirement Income Tax Basics

Most retirement incomes, including Social Security benefits, pension payments, and distributions from individual retirement accounts (IRAs) and 401(k) plans, are subject to federal income taxes.

This is true for most retirees in the United States, as the government heavily taxes such income sources.

Nevertheless, certain types of retirement income may be exempt from taxation or eligible for reduced rates depending on a person’s circumstances.

However, Roth IRA and Roth 401(k) plan distributions are not subject to these taxes.

Before making Roth contributions, federal income taxes must be paid.

If you are 59 1/2 or older and have had the contribution for five years or more, you can take out the money plus any investment gains without having to pay federal taxes.

The complexity of taxation on income varies from state to state.

Some states do not have any income tax, meaning that all retirement and other types of income are exempt from state taxes.

On the other hand, many states rule out taxing Social Security benefits.

Retirement account distributions and pensions are exempt from taxation in some cases. In most places, a combination of strategies is used to tax retirement income.

States With No Income Tax

Most states treat retirement funds from 401(k) plans or IRAs as taxable income.

However, several states provide retirees with tax benefits: Florida, Alaska, Nevada, Tennessee, South Dakota, Washington, Texas, and Wyoming.

These states do not require residents to pay taxes on these retirement funds from 401(k)s or IRAs.

New Hampshire is one of the few states that do not have an income tax, apart from the eight already mentioned.

However, it levies taxes on interest and dividend payments, which can be a significant source of revenue for retired individuals who rely on investment earnings as part of their retirement portfolios.

If you own any assets, such as stocks, bonds, or mutual funds, which generate income and are kept in an IRA or other tax-advantaged plan, the money you receive from your distributions will not be subject to taxation by the State of New Hampshire.

This is because these withdrawals are treated as income and, therefore, exempt from taxation.

States That Do Not Tax Retirement Income

In addition to the nine states that don’t levy an income tax, Iowa, Mississippi, Illinois, and Pennsylvania have taken it one step further by not taxing retirement income.

This means retirees in these jurisdictions can keep more of their hard-earned money and enjoy a more relaxed lifestyle during their golden years. This is what you need to be aware of concerning each one.


Illinois’s flat rate of 4.95 percent is imposed on all earned income, yet any retirement funds are exempt from taxation.

This includes but is not limited to, pensions and 401(k)s distributions acquired throughout one’s working life; individual retirement accounts (IRAs); and Social Security payments that citizens may receive due to age or disability status.


Beginning in 2023, elderly citizens of Iowa who are 55 years old or older will be granted an exemption from taxation on their retirement income due to the implementation of a new regulation passed in 2022.

This generous concession has financially relieved seniors as they enjoy their golden years.

In 2023, the Iowa state income tax rate spans from 4.4 percent to 6 percent and will gradually decrease until it reaches a flat rate of 3.9 percent in 2026.


Mississippi has a maximum tax pension income rate of 5 percent, except retirement income exempt from taxation, provided all retirement plan requirements have been met.

This exemption ensures retirees who receive this income can maintain their desired lifestyle without worrying about taxation on their paychecks.

That being said, any early distributions from retirement plans which don’t satisfy the criteria for retirement income could be subjected to taxation and a penalty.


In the state of Pennsylvania, personal income is subject to a flat rate tax of 3.07 percent. However, any retirement income may be exempt from taxation if certain criteria are fulfilled.

Nevertheless, if withdrawals from retirement accounts such as IRAs happen earlier than 59 ½ years old, taxes could still be imposed upon them.

Other Retirement Income Tax Issues

In contrast to the states mentioned above that do not tax retirement income, other states sometimes offer exemptions.

For instance, military retirement pay is exempt from taxation in certain states; in contrast, other states may handle pension income and money drawn from retirement plans such as 401(k)s or IRAs differently.

In several states, taxation of Social Security income is practiced; however, it may provide some form of exemption, and the majority do not impose taxes on such payments.

Before you decide where to settle down for your retirement, it is critical to comprehend the tax consequences of being a resident in that state.

Income taxes on your retirement funds are an important element but do not forget to look into sales and real estate taxes so that you can see the entire picture.

In the end, it is worth it to pay more taxes if a state provides other benefits that compensate for the increased expense.

Tips For Retirement

  • A financial advisor can be an invaluable asset when choosing a retirement destination. They can provide sound advice and guidance to help you make the best decision for your circumstances. A proficient financial advisor will consider all relevant factors, such as taxes, when helping you create the optimal retirement plan. It can be daunting searching for a qualified financial advisor. Still, with some research and patience, finding someone experienced in retirement planning can be easy.
  • Planning for a secure and comfortable retirement involves more than simply avoiding state taxes on retirement income. Even if states don’t tax your retirement income, they may have higher taxes in other areas. Read up on retirement taxation to learn more about how taxes affect your retirement.

Now You Know Which States Do Not Tax Retirement Income

As you can see, some states don’t tax retirement income. Depending on your situation, these states could be either beneficial or more affordable for your retirement needs.

Keeping track of the constantly changing retirement tax policies is important to ensure you get the most out of your hard-earned money.

Retirees moving from one state to another must look into local tax laws to maximize their savings and avoid costly surprises.

Retirement planning should consider many factors, including those that come in the form of taxes and fees levied by various states across the country.

Collecting all available information about potential destinations will help ensure that no matter where you choose to retire, you will have security in knowing that your money is protected and well spent!


  • Scott Hall

    Scott realized about 5 years ago that he was woefully behind on retirement savings and needed to catch up. He began writing about it on Assets.net

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