Retirement should be a time to relax and enjoy the fruits of your labor, not worry about taxes eating away at your savings. Yet, tax obligations on retirement income—like Social Security, 401(k), IRA, and pensions—vary significantly depending on where you live. The good news? Many states offer tax-friendly policies that make them ideal for retirees.
Let’s explore these states and their tax benefits to help you plan for a financially secure retirement.
No State Income Tax
Nine states don’t impose a personal income tax at all, meaning your Social Security and retirement income are untouched:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
These states are a haven for retirees, with no taxes on Social Security, pensions, or retirement distributions. However, some nuances exist—for example, New Hampshire currently taxes dividends and interest, but this will be phased out by 2024.
States with No Retirement Income Tax
Four additional states go a step further by exempting all types of retirement income, including pensions, 401(k) withdrawals, and IRAs:
- Mississippi
- Pennsylvania
- Illinois
- Iowa
These states also don’t tax Social Security benefits, making them excellent choices for retirees looking to maximize their savings.
Social Security Exemptions
If moving to a state with no income tax isn’t feasible, consider states that specifically don’t tax Social Security benefits. Here’s a list of such states:
- Wisconsin
- Virginia
- South Carolina
- Oregon
- Oklahoma
- Ohio
- North Carolina
- New York
- New Jersey
- Nebraska
- Missouri
- Michigan
- Massachusetts
- Maryland
- Maine
- Louisiana
- Kentucky
- Kansas
- Indiana
- Idaho
- Hawaii
- Georgia
- Delaware
- California
- Arkansas
- Arizona
- Alabama
Many of these states also offer partial or full exemptions on other types of retirement income, so it’s worth digging deeper if you’re planning a move.
Special Considerations
Alabama: Social Security Relief
In Alabama, Social Security and defined benefit retirement plans are exempt from state taxes, though 401(k) and IRA distributions are taxable.
Hawaii: Favorable Pension Rules
Hawaii exempts pensions from taxation, provided the retiree didn’t contribute to the plan. For employee-contributed plans, only the gains are taxable.
Timing and Early Withdrawals
Timing matters when accessing retirement funds. States like Mississippi and Pennsylvania tax early withdrawals from 401(k) or IRA accounts before reaching retirement age, treating these distributions as regular income.
Key Takeaways for Retirement Planning
Choosing where to live in retirement isn’t just about climate or lifestyle—it’s also about your financial health. States like Florida, Texas, and Pennsylvania offer substantial tax savings that can help you stretch your retirement dollars further.
Whether you’re looking for no income tax, Social Security exemptions, or pension-friendly policies, knowing your options can guide your decision.
Plan wisely, and you’ll keep more of what you’ve earned for the golden years ahead.
