States That Don't Tax Retirement Income: What You Need to Know

Written by Ari Parker — Updated: Tuesday, May 6, 2025

When planning life after retirement, many people look for states that offer tax advantages. Since income often decreases in retirement, finding a state that doesn't tax retirement income can help your money last longer.

Here's what you need to know about state taxes on retirement income, including which states are tax-free.

What is considered retirement income?

Retirement income can include a variety of sources, including:

  • Social Security: Benefits received from the Social Security Administration. 

  • Pensions: Payments received from former employers or retirement plans. 

  • 401(k)s and IRAs: Distributions from these retirement savings accounts.

  • Annuities: Payments from insurance contracts that provide income streams that may be tax-free or not. 

  • Rental income: Income earned from renting out property. 

  • Investment income: Income from stocks, bonds, and other investments. 

Your retirement income may include one or more of the items on the above list, and what’s taxable depends on where you live.

Do states have the same rules about taxing retirement income?

No, states do not have the same rules about taxing retirement income. Here's a breakdown of the differences:

  • Some states have no income tax at all.

  • Some states exempt specific types of retirement income.

  • Some states have income limits or phase-outs that affect taxation.

  • Some states tax all types of retirement income.

Other taxes, such as sales tax, property tax, estate tax, and capital gains tax, are also handled differently around the country.

Every state has a tax page on its official .gov website that shows its policies on taxing retirement income.

Which states have no income tax?

Several states have no state income tax for anyone, which greatly benefits seniors. These states are:

  1. Alaska

  2. Florida

  3. Nevada

  4. South Dakota

  5. Tennessee

  6. Texas

  7. Washington

  8. Wyoming

New Hampshire has no income tax, but it taxes interest and dividend payments - often types of income seniors have. If your assets are shifted to a tax-advantaged plan like an IRA, distributions are considered income that isn’t taxable. In 2025, New Hampshire will repeal the tax on dividends and interest, and the state will join the above list.

Four other states have income taxes but give retirees a break on pensions and retirement plan distributions.

  • Illinois has a 4.95% flat income tax but does not tax distributions from most pensions and 401(k) plans, IRAs, and Social Security payouts. Earnings from investments are taxable, however.

  • Mississippi has a 4.7% state tax on individual income and a maximum state tax of 5% on corporate income tax. There is no tax on retirement distributions or Social Security benefits.

  • Pennsylvania has a 3.07% flat tax and doesn't tax retirement plans or Social Security benefits.

  • Iowa has a state tax rate of 3.8%. It doesn't tax retirement plans or Social Security payouts for people 55 and older.

13 states that don’t tax retirement income

In some states, you pay no tax if your retirement income is from Social Security benefits, distributions from a 401(k) or IRA, or a pension.

  1. Alaska

  2. Florida

  3. Illinois - Retirement income is not taxed at the state tax rate of 4.95%.

  4. Iowa - There is no tax on retirement income for those over 55.

  5. Mississippi - Retirement income may not be taxed, but early deductions from retirement plans may be taxable.

  6. Nevada

  7. New Hampshire - Currently, only dividends and interest are taxable.

  8. Pennsylvania- Retirement income may not be taxed, but early deductions from retirement plans may be taxable.

  9. South Dakota

  10. Tennessee

  11. Texas

  12. Washington

  13. Wyoming - The state does not tax personal or corporate income. 

Which states don't tax Social Security benefits or pension income?

Most states don't tax Social Security benefits. Nine states do, to varying degrees:

  1. Colorado

  2. Connecticut

  3. Minnesota

  4. Montana

  5. New Mexico

  6. Rhode Island

  7. Utah

  8. Vermont

  9. West Virginia

West Virginia has eliminated the tax on Social Security income for those making $50,000 or less ($100,000 if filing as a couple). The other tax is based on your adjusted gross income (AGI) and filing status.

Some states do not tax pension income:

  1. Alabama

  2. Hawaii

  3. Illinois

  4. Iowa

  5. Mississippi

  6. Pennsylvania

27 other states partially tax pensions:

  1. Arizona

  2. Arkansas

  3. Colorado

  4. Connecticut

  5. Delaware

  6. Georgia

  7. Idaho

  8. Kansas

  9. Kentucky

  10. Louisiana

  11. Maine

  12. Maryland

  13. Massachusetts

  14. Michigan

  15. Minnesota

  16. Missouri

  17. Nebraska

  18. New Jersey

  19. New Mexico

  20. New York

  21. North Dakota

  22. Oklahoma

  23. Pennsylvania

  24. Rhode Island

  25. South Carolina

  26. Vermont

  27. West Virginia

Which states offer the best tax benefits for retired military personnel?

Most states don't tax retirement pay for retired military. However, some states, such as California, tax military retirement pay as regular income. The list of states that tax military pensions to varying degrees includes:

  1. California

  2. Colorado

  3. Delaware

  4. District of Columbia (DC)

  5. Georgia

  6. Idaho

  7. Kentucky

  8. Maryland

  9. Montana

  10. New Mexico

  11. Oregon

  12. Vermont

  13. Virginia

For instance, Delaware has a $2,000 exemption for military retirees under 60 and $12,500 for those over 60. Vermont offers $10,000 exemptions for single filers for those with incomes up to $60,000 and for joint filers up to $75,000. However, taxpayers cannot claim both a military and a Social Security retirement benefits exemption in Vermont.

The provisions for each state differ significantly, so check here for current regulations for military retirees in each state.

Do retirees get a break on capital gains taxes?

When you sell property, stock, or other assets, any profit you make may be subject to capital gains taxes from the federal government. The IRS allows no specific tax exemptions for senior citizens when it comes to income or capital gains.

The IRS sets the rate on capital gains taxes and grants only one exemption for seniors: If you sell your primary residence, there's a $250,000 exemption for single taxpayers and a $500,000 exemption for those who file jointly. Otherwise, everyone pays the same rate on short-term and long-term gains on their federal taxes.

States have different policies on taxing capital gains for retirees. In states without any personal income tax, such as Florida and Texas, retirees do not pay state taxes.

However, in states that do tax income, capital gains are typically taxed at the same rate as other income, although some states, like New Mexico or North Dakota, offer exemptions on certain parts of capital gains and may offer lower rates or special provisions for capital gains.

What states have no property tax for seniors?

All homeowners pay property taxes, but the amount varies based on local tax rates and home values. While many states offer property tax breaks for older homeowners, a low tax rate doesn't always mean lower costs. For example, Hawaii has one of the lowest property tax rates, but since the average home there costs $986,352, homeowners still pay substantial property taxes.

Here are the highest and lowest property tax rates across the 50 states:

Highest Property Tax Rate States

  1. New Jersey – 1.77%

  2. Illinois – 1.83%

  3. New Hampshire – 1.41%

  4. Vermont – 1.42%

  5. Texas – 1.36%

  6. Nebraska – 1.44%

  7. Wisconsin – 1.25%

  8. Ohio – 1.31%

  9. Iowa – 1.23%

Lowest Property Tax Rate States

  1. Hawaii – 0.32%

  2. Alabama – 0.36%

  3. Colorado – 0.50%

  4. Wyoming – 0.55%

  5. Louisiana – 0.55%

  6. South Carolina – 0.47%

  7. West Virginia – 0.48%

  8. Utah – 0.47%

  9. Nevada – 0.49%

  10. Delaware – 0.50%

Are there any states that exempt all retirement income from taxes?

Some states limit taxes for seniors, but every state has some taxes that retirees must pay. The top states with the lowest taxes for retirees are:

  1. Alaska

  2. Florida

  3. South Dakota

  4. Wyoming

  5. Tennessee

The five states that rank the highest taxes for retirees include:

  1. Connecticut

  2. California

  3. Vermont

  4. Hawaii

  5. New York

Which is the best state for you to retire?

There’s a lot to consider when it comes to deciding on the most tax-friendly state to retire in. Some factors you may want to think about include:

  • The amount and source of your retirement income

  • Your expected taxable income from employment and rentals

  • The overall value of your retirement accounts

  • Whether you want to own or rent

  • Your health concerns

  • If your tax bracket is likely to change (i.e., from selling off property and assets, stopping working, or other life changes that affect income)

A tax professional or financial advisor can give you a complete picture of where your retirement finances would be best.

While tax benefits are important when choosing where to retire, they're just one piece of the puzzle. Consider other key factors like healthcare costs, Medicare options, and overall quality of life. Many people also prioritize living near family and friends when making their decision.

For more information on choosing the best places to retire, check out our retirement guides: 

Nevada

Illinois

Florida

New Jersey

New York

Maryland

Virginia

Texas

Colorado

Washington, DC

West Virginia 

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