State income tax rates are not the only factor to consider when choosing a retirement location, but they can significantly affect finances depending on how one plans to fund their retirement.
Individuals spend their working years saving and investing for retirement. Upon retiring, the focus shifts to stretching their savings over the necessary duration. While taxes are unavoidable, efforts to minimize the tax burden are advisable.
Each U.S. state has its own approach to taxation, with 13 states not taxing retirement income at all. Factors such as location, the real estate market, and other state or local taxes can influence living costs across different states. Income tax laws could play a role in determining the most financially advantageous place to retire.
As of 2025, a summary is provided on how various U.S. states tax retirement income.
Eight States Without Income Tax on Retirement Income
Retirement income, which may come from accounts such as a 401(k) or IRA, pensions, Social Security, or investment income from brokerage accounts, is tax-free in eight states. These states are:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Wyoming
New Hampshire previously taxed dividends and interest but has repealed this tax effective January 1, 2025.
One State with a Minor Exception
Washington imposes a 7% income tax on capital gains exceeding a threshold of $270,000 for the 2024 tax year. Otherwise, there are no state income taxes.
Four States Taxing Other Income but Not Retirement Income
Some states tax earned and investment income but exempt income from retirement accounts and Social Security. These are:
- Illinois
- Iowa (for those 55 and older)
- Mississippi
- Pennsylvania
These states may tax nonqualified retirement income, such as early distributions from pensions or 401(k) plans.
Social Security Taxation
Many Americans rely on Social Security benefits, which are exempt from state income taxes in 41 states:
- Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin, Wyoming
While Washington, D.C., is included in this group, nine states tax Social Security: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. West Virginia will phase out this tax after the 2025 tax year.
Pension Taxation
Pensions continue to be important for many, despite their decline in the private sector. Fifteen states do not tax pension income but may tax other income:
- Alabama, Alaska, Florida, Hawaii, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wyoming
Alabama and Hawaii may still tax distributions from certain retirement accounts.
Additional Considerations
Understanding specific state income tax laws and their implications is essential, as they can vary greatly. State and federal income taxes are separate, and federal tax laws apply regardless of state residence.
