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13 states that do not tax retirement income

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Credit Sesame’s ABC of states that do not tax retirement income.

Planning for retirement? Are you liable for tax on your retirement income? Some retirement distributions are considered income and taxed by the federal government. Some states do not tax retirement income. Some states do tax income of any kind.

Here is our ABC os states that do not tax retirement income. Retirement income is 401(k), IRA or pension income. Most states don not tax Social Security benefits.

Alaska

Alaska has no income tax for anyone. Retired or not, it does not tax incomes. 

For retirees, it doesn’t tax Social Security benefits. For their beneficiaries, Alaska doesn’t have an inheritance tax or an estate tax.

Live in Alaska for a year as a retiree, and you are eligible for the annual stipend that the state pays to legal residents who have lived there for at least one year The Permanent Fund Dividend, as it’s called, was $3,284 in 2022, and the 2023 payout is projected to be $3,800. The money comes from the investment of earnings of the state’s oil reserves.

Florida

Florida also does not have a state income tax for its residents.

Florida also does not tax retiree incomes such as a 401(k), IRA or pension, and Social Security income. There are no inheritance or estate taxes either.

“Snowbirds” who head south to Florida for the winter from other states must establish residency in Florida to take advantage of its tax benefits. The main way to do this is by showing through your actions that Florida is your primary and permanent home. Ways to do this in Florida include:

  • Spend six months there.
  • Get a Florida driver’s license.
  • Register and insure your vehicle in Florida.
  • Vote.
  • Buy a bigger home.
  • Join groups and socialize in Florida.
  • Visit doctors and other professionals.
  • Bank locally.
  • Have all of your bills sent to your Florida home.
  • Pay taxes as a Florida resident, including federal income and property taxes.

Illinois

Illinois does not tax pension, Social Security or most forms of retirement income, including a traditional IRA that has been converted to a Roth IRA. The state does have an inheritance tax.

High property taxes, however, may cause retirees or anyone to think twice about moving to Illinois. The statewide median property tax rate in Illinois is the second-highest in the country, at $2,073 per $100,000 of assessed value.

Also keep in mind that Illinois charges a flat state income tax of 4.95%, which retirees must still pay on other types of income. 

Iowa

All retirement income is exempt from the flat state income tax rate of 4.96% in Iowa, including Social Security payments. A new law on exempting retirement income from state taxes took effect in 2023.

Iowa does not have an estate tax but it does have an inheritance tax. The inheritance tax ranges from zero for less than $25,000 in inheritance, to $6,825 plus 6% of an amount over $150,000.

Mississippi

Mississippi does not tax retirement income for anyone 59.5 years or older. Retire earlier than that, and the state takes it share of 401(k), IRA or pension income. 

The state does not tax Social Security benefits. Mississippi also does not charge inheritance or estate taxes.

Nevada

Nevada has no income tax, including on retirement funds or any other type of income.

Social Security benefits also are not taxed by the state, and inheritance and estate taxes don’t exist.

New Hampshire

New Hampshire is the only state in the New England area without a general income tax.

It does, however, impose a tax on interest and dividends, though retirees are exempt from paying it on taxes and interest from retirement plans. The tax on dividends and interest is being phased out and will be repealed on Jan. 1, 2027.

Social Security benefits are not taxed. New Hampshire also does not collect inheritance or estate taxes.

New Hampshire has a high property tax, at $1,766 per $100,000 of assessed home value.

Pennsylvania

Pennsylvania does not tax pension, employer-sponsored retirement plans, or IRAs of retirees. It also does not tax Social Security benefits.

The state’s inheritance tax ranges from 4.5% to 15%, depending on a recipient’s relationship to the deceased and their age. The inheritance tax does not apply to property inherited by the decedent’s:

  • Spouse.
  • Parents if the decedent is 21 or younger.
  • Child 21 or younger.

Pennsylvania has a flat income tax rate of 3.07% for everyone, including retirees. Local governments and school districts may also levy income taxes. Property taxes are a little high, at $1,358 per $100,000 of assessed value.

South Dakota

South Dakota has no income tax and does not tax pension, 401(k) or IRA income in retirement.

The state also does not tax Social Security benefits, and it does not have an inheritance or estate tax.

South Dakota has a property tax homestead exemption for homeowners 70 or older, or their surviving spouses. This delays payment of property taxes until the property is sold. Taxes are a lien on the property and must be paid with 4% interest before the property can be transferred.

Tennessee

Tennessee has no income tax, including on a pension, 401(k) and IRA income for retirees. The state does not tax Social Security benefits, and does not have an inheritance or estate tax.

Property taxes in Tennessee are well below average, at $560 per $100,000 of assessed value.

Texas

Texas has no personal income tax, and retirement income and Social Security benefits are not taxed either. The state also does not have an inheritance or estate tax.

However, Texas makes up for all of these tax exclusions with the seventh-highest median property tax rate in the country, at $1,599 per $100,000 of assessed home value.

Washington

Washington State does not have an income tax. A retiree’s 401(k), pension or IRA income also aren not taxed by the state, and Social Security benefits escape state taxation too.

The state charges estate taxes on estates valued at least $2.19 million. It does not have an inheritance tax.

Property taxes are close to the national average, with the median property tax rate at $836 per $100,000 of assessed home value.

Wyoming

Wyoming is another state with no income tax, and thus no taxes on 401(k) plans, IRAs or pensions. It also does not tax Social Security benefits, and it does not have an inheritance or estate tax.

Property taxes are low in Wyoming. The statewide median property tax rate is the 10th-lowest in the country, at $545 per $100,000 of assessed home value.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Aaron Crowe
Aaron Crowe is a freelance journalist who specializes in personal finance topics. He has written for Wise Bread, AOL, AARP, Bankrate and other websites that focus on financial literacy and saving money. He has also worked as a newspaper reporter and editor. You can follow him on Twitter @AaronCrowe.

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