Where you retire can make a difference of thousands of dollars per year in taxes. State tax rules on retirement income vary dramatically — from states like Florida and Texas that charge nothing, to states like Minnesota that tax Social Security, pensions, and 401(k)/IRA withdrawals as ordinary income.
This isn’t just about income taxes. Property taxes, sales taxes, and estate taxes also affect your retirement budget. A state with no income tax but sky-high property taxes (looking at you, Texas) may not save you as much as you think. The tables below cover every angle so you can make an informed decision about where to retire.
States with No Income Tax
These states don’t tax any income, including retirement income:
| State | Notes |
|---|---|
| Alaska | No income or sales tax |
| Florida | No income tax; popular retirement destination |
| Nevada | No income tax |
| South Dakota | No income tax |
| Tennessee | No income tax (dividend tax repealed 2021) |
| Texas | No income tax |
| Washington | No income tax (capital gains tax on high earners) |
| Wyoming | No income tax |
| New Hampshire | No tax on wages; tax on dividends/interest only |
These nine states (plus New Hampshire’s partial exemption) are the simplest option for retirees who want to avoid state income taxes entirely. Florida alone accounts for the largest share of retirement migration in the U.S. — and tax-friendliness is a major reason. However, some of these states compensate with higher property or sales taxes, so look at the full picture before relocating.
States That Fully Exempt All Retirement Income
These states have a state income tax but exempt Social Security, pensions, and retirement account withdrawals:
| State | Social Security | Pensions | 401(k)/IRA |
|---|---|---|---|
| Illinois | Exempt | Exempt | Exempt |
| Mississippi | Exempt | Exempt | Exempt |
| Pennsylvania | Exempt | Exempt | Exempt |
These three states offer the best of both worlds for retirees: a functioning income tax system that funds public services, but zero tax on retirement income. Pennsylvania is particularly popular with retirees from neighboring high-tax states like New York and New Jersey.
Social Security Tax Treatment by State
At the federal level, up to 85% of your Social Security benefits may be taxable depending on your combined income. On top of that, some states add their own layer of taxation.
States That Tax Social Security (9)
| State | Taxation Method |
|---|---|
| Colorado | Federal taxable portion minus $20,000 (65+) |
| Connecticut | Exempt if AGI <$75k single/$100k joint |
| Kansas | Exempt if federal AGI <$75,000 |
| Minnesota | Partial subtraction based on income |
| Montana | Follows federal taxation |
| New Mexico | Exempt if income <$100k single/$150k joint |
| Rhode Island | Exempt if income <$103,950 (indexed) |
| Utah | 4.65% tax credit phases out at higher incomes |
| Vermont | Exempt if income <$50k single/$65k joint |
Most of these states exempt lower-income retirees entirely. If your total income is modest, you may owe nothing even in a state that technically “taxes” Social Security. But for retirees with substantial pension income, 401(k) withdrawals, or investment income, these states can take a meaningful bite.
The trend is toward exemption: Nebraska, West Virginia, and Missouri have all recently eliminated or phased out Social Security taxes. This list of 9 states has been shrinking steadily.
States That Fully Exempt Social Security (32)
Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Missouri, Nebraska, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, Virginia, West Virginia, Wisconsin
Plus the 9 states with no income tax
Combined with the no-income-tax states, this means 41 states don’t tax Social Security benefits at all. The maximum Social Security benefit can exceed $58,000/year — keeping that entirely exempt from state taxes is significant.
Pension Tax Treatment by State
Pension taxation varies more than any other retirement income category. Some states exempt government pensions but tax private ones; others use flat dollar exemptions. If you’re receiving a federal, state, or military pension, this section is critical.
States with Full or Significant Pension Exemptions
| State | Exemption Amount |
|---|---|
| Alabama | All retirement income exempt |
| Hawaii | Government pensions exempt |
| Illinois | All retirement income exempt |
| Kansas | Government pensions exempt |
| Louisiana | $6,000 exemption (65+) |
| Massachusetts | Government pensions exempt |
| Michigan | Public pensions exempt; private partially |
| Mississippi | All retirement income exempt |
| New York | $20,000 exemption (59½+) |
| North Carolina | Bailey settlement (certain state pensions) |
| Ohio | $200 credit for retirement income |
| Pennsylvania | All retirement income exempt |
Federal civilian and military retirees should pay special attention here. States that exempt “government pensions” typically include federal pensions (FERS/CSRS) and military retirement pay. This exemption can save thousands annually — a federal retiree with a $40,000 pension in Massachusetts pays $0 state tax on it.
States That Fully Tax Pensions (Like Regular Income)
California, Connecticut, Indiana, Minnesota, Nebraska, North Dakota, Oregon, Rhode Island, Vermont, Wisconsin
If you’re comparing a pension vs. 401(k) payout, state tax treatment may tip the balance. A lump-sum 401(k) rollover into an IRA in a tax-friendly state could save significantly over annual pension payments in a high-tax state.
401(k) and IRA Tax Treatment
Most states treat 401(k) and IRA distributions as ordinary income, but some offer meaningful exemptions:
States with Retirement Income Deductions/Credits
| State | Exemption/Deduction |
|---|---|
| Alabama | All retirement income exempt |
| Colorado | $20,000 (55-64); $24,000 (65+) |
| Delaware | $12,500 (60+) |
| Georgia | $65,000 (65+) |
| Hawaii | Qualified distributions exempt |
| Illinois | All retirement income exempt |
| Iowa | $6,000 |
| Kentucky | $31,110 (indexed) |
| Louisiana | $6,000 (65+) |
| Maryland | $36,200 (65+) |
| Michigan | Birth year dependent; up to $56,961 |
| Mississippi | All retirement income exempt |
| Missouri | 100% exemption if income limits met |
| New Jersey | $100,000+ (65+, income limits) |
| New York | $20,000 (59½+) |
| Ohio | $200 credit |
| Oklahoma | $10,000 |
| Oregon | Up to $7,050 credit (65+) |
| Pennsylvania | All retirement income exempt |
| South Carolina | $10,000; $15,000 (65+) |
| Utah | Tax credit (phased out by income) |
| Virginia | $12,000 (65+) |
| West Virginia | $8,000 first 2 years; up to $16,000 |
Georgia’s $65,000 exemption is particularly generous — a retiree couple over 65 can exempt $130,000 of retirement income, making Georgia functionally tax-free for most retirees.
These exemptions matter when planning required minimum distributions (RMDs). If your state exempts the first $20,000+ of retirement income, smaller RMDs may be entirely tax-free at the state level even though they’re taxed federally. This is another factor in the Roth vs. traditional decision — Roth withdrawals aren’t counted as income in any state.
Tax-Friendliness Comparison
Most Tax-Friendly States for Retirees
| Rank | State | Why |
|---|---|---|
| 1 | Wyoming | No income tax, low property taxes |
| 2 | Florida | No income tax, no estate tax |
| 3 | Nevada | No income tax |
| 4 | Tennessee | No income tax, low cost of living |
| 5 | South Dakota | No income tax |
| 6 | Texas | No income tax (but higher property taxes) |
| 7 | Pennsylvania | All retirement income exempt |
| 8 | Mississippi | All retirement income exempt |
| 9 | Illinois | All retirement income exempt |
| 10 | Alabama | All retirement income exempt |
Least Tax-Friendly States for Retirees
| Rank | State | Why |
|---|---|---|
| 1 | Minnesota | Taxes SS, high income tax rates |
| 2 | Vermont | Taxes SS, high income tax rates |
| 3 | Connecticut | Taxes most income, high property taxes |
| 4 | Nebraska | Taxes SS, moderate rates |
| 5 | California | High income tax (but SS exempt) |
| 6 | New York | High income tax (but has exemptions) |
| 7 | Oregon | No sales tax but high income tax |
| 8 | Wisconsin | Most retirement income taxed |
| 9 | Rhode Island | Taxes SS for higher incomes |
| 10 | Montana | Taxes SS, moderate rates |
The best states for retirees depends on more than just tax rates — cost of living, healthcare quality, climate, and proximity to family all matter. But taxes can easily represent a $5,000-$10,000+ annual difference, which compounds significantly over a 20-30 year retirement.
Tax Impact Examples
$50,000 Retirement Income Comparison
| State | Tax on $50k Retirement Income |
|---|---|
| Florida | $0 |
| Texas | $0 |
| Pennsylvania | $0 |
| Mississippi | $0 |
| Illinois | $0 |
| Georgia | ~$800 (after $65k exemption if 65+) |
| Arizona | ~$1,200 |
| North Carolina | ~$2,400 |
| California | ~$1,200 |
| Minnesota | ~$2,800 |
Assumes single filer, age 65+, standard deduction
$100,000 Retirement Income Comparison
| State | Tax on $100k Retirement Income |
|---|---|
| Florida | $0 |
| Texas | $0 |
| Pennsylvania | $0 |
| Mississippi | $0 |
| Illinois | $0 |
| Georgia | ~$2,000 (after $65k exemption) |
| Arizona | ~$3,200 |
| North Carolina | ~$5,300 |
| California | ~$4,000 |
| Minnesota | ~$6,500 |
At $100,000 in retirement income, the spread between the most and least tax-friendly states is $6,500/year — that’s $130,000 over a 20-year retirement. Even modest relocations can help: moving from Minnesota to neighboring South Dakota eliminates the entire $6,500 annual tax bill. Use our retirement income calculator to model your specific situation.
Other Tax Considerations for Retirees
Property Taxes
Many states offer property tax exemptions or freezes for seniors. Don’t overlook this — property taxes often exceed state income taxes for retirees who own their home:
| State | Benefit |
|---|---|
| Texas | School tax freeze at 65 |
| Florida | Homestead exemption + additional senior exemptions |
| Georgia | County-specific senior exemptions |
| South Carolina | Homestead exemption (65+) |
Sales Tax
States with no sales tax can save retirees hundreds to thousands per year on everyday spending:
| State | Sales Tax |
|---|---|
| Oregon | 0% |
| Montana | 0% |
| Delaware | 0% |
| New Hampshire | 0% |
| Alaska | 0% (local taxes may apply) |
Estate/Inheritance Tax
If you’re concerned about passing wealth to heirs, estate tax matters. Most states have no estate or inheritance tax, but those that do can significantly reduce what your beneficiaries receive:
| Type | States |
|---|---|
| Estate Tax Only | CT, HI, IL, ME, MA, MN, NY, OR, RI, VT, WA, DC |
| Inheritance Tax Only | IA, KY, NE, NJ, PA |
| Both | MD |
| Neither | All others |
Pennsylvania’s inheritance tax is worth noting: despite exempting all retirement income from income tax, it imposes a 4.5-15% inheritance tax depending on the relationship of the beneficiary. This is a trade-off to consider as part of your broader estate planning.
Planning Strategies
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Establish residency before retiring. Most states require 183+ days of physical presence plus intent to remain. Don’t assume snowbirding counts — maintain a permanent home, driver’s license, and voter registration in your preferred state.
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Coordinate with Social Security claiming. If you plan to relocate to a no-tax state, delaying Social Security until after the move ensures you never pay state tax on those benefits.
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Use Roth conversions strategically. Converting traditional IRA/401(k) funds to Roth while in a low-tax or no-tax state means the converted amount is taxed at your (low) state rate — and future Roth withdrawals are tax-free everywhere.
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Model the full picture. A state with moderate income tax but low property tax and no sales tax may cost less overall than a no-income-tax state with high property taxes. Use our retirement income calculator for comprehensive analysis.
Key Takeaways
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No income tax states offer the simplest tax situation for retirees (FL, TX, NV, WY, TN, SD, AK, WA)
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Only 9 states tax Social Security — even then, many exempt lower-income retirees
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Several states with income tax still exempt retirement income (PA, MS, IL, AL)
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Consider the full tax picture — income, property, sales, and estate taxes all matter
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State residency matters — you’re taxed by where you live, not where you earned the pension
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The trend favors retirees — more states are eliminating retirement income taxes each year
For state-by-state retirement rankings, see best states to retire for taxes and best states for retirees. Return to the Best Places to Retire hub.
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