Best States for Retirees Who Want to Avoid Paying State Taxes on Retirement Income
Some states exempt multiple forms of retirement income and several states have no income tax at all.Credit: Getty Images Key Takeaways Forty-one states don’t tax Social Security income. Thirty-seven states don’t tax most military retirement pay. Sixteen states exempt pension income from state taxes. Nine states have no income tax. This count includes Washington, which…
Some states exempt multiple forms of retirement income and several states have no income tax at all. Credit: Getty Images
Key Takeaways
Forty-one states don’t tax Social Security income.
Thirty-seven states don’t tax most military retirement pay.
Sixteen states exempt pension income from state taxes.
Nine states have no income tax. This count includes Washington, which taxes high earners’ capital gains only.
After a lifetime of contributing to Social Security, building up a retirement plan, or earning a pension, you may be bracing for a big tax hit in retirement. Now you’re ready to punch your last time cardand your state has its hand out for some tax dollars as well.
Or does it? While federal taxes are unavoidable, some states are kinder than others when it comes to taxing retirement income. And fortunately, most states don’t tax social security. The only ones that do are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
But several states go beyond Social Security and let you avoid state tax on various types of income.
7 States With Tax Breaks for Retirees
Arkansas
A man fishing the Arkansas River Credit: Getty Images/Samuel Wells
Arkansas offers retirees a break by exempting up to $6,000 per year from public and private employer-sponsored pension plans and traditional IRA distributions received after the age of 59½ or because of death or disability. It also doesn’t tax Social Security income or tax military retirement pay at all. Plus, Arkansas imposes no estate or inheritance tax, so your heirs won’t face additional tax burdens.
Illinois
Retirees in Illinois can enjoy Chicago’s vibrant neighborhoods and miles of scenic lakefront. Credit: Page Light Studios / Getty Images
Illinois exempts pension income, 401(k) and IRA withdrawals, Social Security benefits, and military retirement pay from state taxes. However, Illinois does tax other investment earnings. The state also imposes estate and inheritance taxes.
Iowa
A colorful fall scene in Burlington, Iowa Credit: Travel Iowa Tourism
Iowa recently updated its tax laws to be more retiree-friendly. As of 2023, the state no longer taxes pension, annuity, or IRA income for residents over age 55.
Then in 2025, the state transitioned to a flat tax system, with a rate of 3.8%. It also eliminated its inheritance tax.
Mississippi
Retirees in Mississippi can enjoy low living costs, warm weather, and easy Gulf Coast access. Credit: Joe Raedle / Staff / Getty Images
Mississippi spares retirement plan distributions, pension income, annuities, Social Security income, and military retirement pay from state taxes. Early distributions from retirement plans generally don’t qualify for exempt status. This state doesn’t have an estate or inheritance tax, either.
New Hampshire
New Hampshire gives retirees easy access to mountain trails, scenic waterfalls, and outdoor adventure. Credit: Media photo courtesy of the New Hampshire Division of Travel and Tourism
New Hampshire doesn’t tax Social Security or pension income. This state doesn’t have an income tax on earned wages and most distributions count as income so they’re exempt.
Notably, New Hampshire repealed its tax on interest and dividends as of Jan. 1, 2025, making it even more attractive for retirees. Estate and inheritance taxes are also absent in New Hampshire.
Pennsylvania
Pennsylvania offers retirees charming small towns, historic cities, and scenic mountain escapes. Credit: Roy Morsch/Getty Images
Retirees in Pennsylvania benefit from a lack of state taxes on Social Security, pension income, and retirement plan distributions. However, Pennsylvania has a flat income tax rate.
Though different than income tax, Pennsylvania offers a property tax/rent rebate program for older adults.
South Carolina
Retirees in South Carolina can enjoy sandy beaches, plenty of golf, and mild weather year-round. Credit: Rachid Dahnoun/Aurora/Getty Images
South Carolina doesn’t tax Social Security income. In addition, all military retirement pay is exempt from state income taxes.
9 States With No Income Tax At All
In these additional states, you don’t need to worry about state income taxes on any type of income.
These nine states offer automatic tax relief for retirees by not taxing any retirement income. It’s also worth noting that some of these states may still levy other taxes, such as property taxes or sales taxes, to make up for the lack of income taxes.
At What Age Do You Stop Paying Taxes on Your Pension?
In the U.S., there is no age you stop paying taxes on your pension as taxes are not determined by age. Most pensions will be subject to federal income tax and state income tax, depending on the state. Additionally, at age 73, you must start taking required minimum distributions from any traditional IRA accounts.
How Can I Reduce Taxes in Retirement?
There are a few strategies you can incorporate to help reduce your retiree tax bill. You should start by planning your withdrawals strategically, drawing first from taxable accounts and then moving on to tax-deferred 401(k)s and IRAs. This allows tax-advantaged accounts to grow longer while keeping taxable income lower early on.
Keep in mind that required minimum distributions (RMDs) begin at 73, so converting some traditional IRA money to a Roth IRA beforehand can reduce future tax burdens since Roth IRAs are not subject to RMDs.
You can also consider delaying Social Security benefits until age 70, as that will increase your benefits but also keep taxes lower early on. Donating to charities also reduces taxes. Lastly, living in a tax-friendly state will reduce your taxes as will certain medical deductions.
How Is Social Security Taxed in Retirement?
Social Security can be taxed in retirement depending on your income. If your combined income, which includes Social Security benefits and nontaxable interest, is above a certain threshold, you will be subject to income tax.
For single filers, if your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxed. (For married filing jointly filers, it’s $32,000 to $44,000.) For single filers, if your combined income is above $34,000, up to 85% of your benefits may be taxed. (For married filing jointly filers, it’s if it’s above $44,000.)
The Bottom Line
State taxes on retirement income vary, but several states make life easier for retirees by offering significant tax breaks on Social Security, 401(k) withdrawals, IRA distributions, and pensions.
If you live in one of these retiree-friendly states—or one of the nine states without any income tax at all—you’ll keep more of your hard-earned retirement income. While tax laws can change, it’s important to consider these factors when deciding where to retire. But there’s more to consider than just taxes, so consider speaking to a financial advisor to find the right plan for you.
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