Let's face it. Whether you're working or retired, paying income taxes can be a drag. Although we each have a civic duty to help fund the government we benefit from, most consumers would typically like to minimize the amount.
Well, there's good news for current and future retirees: A handful of states don't tax any retirement income at all. Now, you shouldn't simply move to one of these states as means of lowering your tax bill. It wouldn't be wrong, however, to at least consider this perk when making your bigger-picture life plans.
Where your retirement income isn't taxed
As of this year, nine U.S. states don't collect income tax on retirees' income simply because these states don't impose income tax on anyone. Other forms of revenue (like sales tax and property tax) suffice as a source of funding for them. These nine income-tax-free states include:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
And yes, New Hampshire is correctly on this list without any additional footnote. Prior to the end of 2024 the state did tax dividend and interest income -- often an important source of funding for retirees. As of the beginning of 2025, however, this tax has also been lifted, making it a truly state-tax-free home for all of its residents. Of course, these retirees may still subject to federal taxation, as well as any city or county taxes.
Another four states impose regular income tax but still make exceptions for their retirees' income. Each state's rules, however, can still be a little bit different.
- Illinois: This is where the differences are simplest -- distributions from 401(k) and other retirement accounts along with pension income and Social Security payments aren't subject to income tax in Illinois.
- Iowa: Money taken out of 401(k) accounts, IRAs, and other similar tax-sheltered vehicles isn't taxed as income in Iowa as long as you're aged 55 and older. Neither is Social Security income.
- Mississippi: Most of the same aforementioned sources of income also sidestep taxation in Mississippi as long as you've met the retirement plan's requirements (which most people considering this option will). Early distributions from most types of retirement accounts, however, are seen as ordinary income and taxed accordingly.
- Pennsylvania: The state taxes work-based wages, but income from IRAs, 401(k) accounts, and even Social Security isn't taxable. Pension income isn't taxable in Pennsylvania, either, as long as the recipient is at least 60 years old.
And since you were probably wondering, most states don't charge income tax on Social Security income. In fact, only a handful of states do, so it's easier to simply share the shorter list of locales where your benefits from this government-run program do add to your total potential tax liability. These nine states are:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
That being said, know that West Virginia has been lowering its tax burden on Social Security income for some time now, and by 2026 will have phased out all state-based taxation of these benefits.
Any good plan starts with a little number-crunching
There was a time when avoiding state-level taxes could have made a meaningful difference in a retiree's budget, and in plenty of cases it still can.
Just know that in many places where retirees may not owe state or even local taxes on their income, other costs have soared. Online realtor Redfin, for instance, reports property taxes in Tampa, Florida, have grown 60% just since 2019. In the meantime, the median home price in Tennessee has swelled from less than $250,000 to nearly $390,000 in the same time frame. That's not an insignificant change.
You should consider every factor before making a major move. Take a prolonged visit to a prospective future home. There's always more to the story.
So, sit down and crunch some numbers. Make a comparative budget of what it might cost to stay where you are versus where you might like to live. It would still be time well spent if -- like most retirees -- you're going to be on something of a budget.
