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Retiring? These States Won’t Tax Your Distributions

Written by Tax Defense Network       |   Last modified on      
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Overview

According to the recent Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI), most Americans still plan to retire by age 65. Unfortunately, many are leaving the workforce earlier due to an unplanned hardship or health issue. Regardless of when you decide to retire, one thing is certain: taxes can have a significant impact on your finances. The IRS will want a cut of your pension, Social Security, and other retirement income. And, depending on where you live, your state could be taking a piece of the pie, too. That’s why it’s so important to plan ahead and find a location where your retirement distributions will go further.

Key Takeaways

  • There are 13 states that don’t tax retirement distributions (pensions, IRAs, 401(k)s).

  • Some states with an income tax still specifically exempt retirement income, like Illinois, Iowa, Mississippi, and Pennsylvania.

  • Even in states that don’t tax retirement income, retirees should account for other taxes (sales, property, estate) and eligibility rules that may affect their tax burden.

13 States That Don’t Tax Retirement Distributions

If you have a retirement account, such as a 401(k) or Thrift Savings Plan (TSP), you’ll want to consider moving to one of the states that don’t tax your retirement income. There are currently 13 that don’t tax distributions from pensions or defined contribution plans.

  • Alaska
  • Florida
  • Illinois
  • Iowa
  • Mississippi
  • Nevada
  • New Hampshire
  • Pennsylvania
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

These 13 states also refrain from collecting income taxes on your Social Security benefits. All except four – Illinois, Iowa, Mississippi, and Pennsylvania – have no state income taxes at all. Alaska and New Hampshire are the only states with no income, sales, or Social Security tax. New Hampshire, however, does tax interest and dividend payments.

States That Won’t Tax Your Pension Distributions

In addition to the states listed above, two more states won’t tax your pension distributions:

  • Alabama
  • Hawaii

Unfortunately, both will tax your 401(k) or traditional IRA distributions. In Alabama, only the first $6,000 from a traditional IRA or 401(k) is tax-exempt if you’re 65 or older. Hawaii taxes all distributions from these plans, regardless of size or age. Some states, such as New York, will exclude your federal pensions from income tax but not all private pensions.

States That Tax Your Military Retirement Pay

If you’ve served in the armed forces for 20 years or longer, you’ll probably receive military retirement pay after you reach the age of 60. Many states recognize the sacrifice our military personnel make while serving and won’t tax your retirement income. Some states, however, will either partially or fully tax your retirement pay.

States That Don’t Tax Your Military Retirement Income

  • Alabama
  • Alaska (no state income tax)
  • Arizona
  • Arkansas
  • Connecticut
  • Florida (no state income tax)
  • Hawaii
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Louisiana
  • Maine
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • Nebraska
  • Nevada (no state income tax)
  • New Hampshire (only taxes dividends and interest)
  • New Jersey
  • New York
  • North Carolina
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • Rhode Island
  • South Carolina
  • South Dakota (no state income tax)
  • Tennessee (no state income tax)
  • Texas (no state income tax)
  • Washington (no state income tax)
  • West Virginia
  • Wisconsin
  • Wyoming (no state income tax)

States That Partially Tax Military Retirement Income

  • Colorado
  • Delaware
  • Georgia
  • Idaho
  • Kentucky
  • Maryland
  • Montana
  • New Mexico
  • Oregon
  • Utah
  • Vermont
  • Virginia

It’s important to note that your age usually limits any income exclusions or exemptions offered by these states. Be sure to check with each state to determine its specific tax rules regarding military retirement benefits.

States That Fully Tax Military Retirement Income

As of 2024, California is the only state that fully taxes military retirement income. The District of Columbia (Washington, D.C.) does not provide an exemption on military retirement pay either.

States That Won’t Tax Your Social Security Income

The good news is that most states do not tax Social Security income. As of 2026, only eight (8) states currently tax this income for retirees. The amount taxed is generally based on your filing status and adjusted gross income (AGI).

  1. Colorado
  2. Connecticut
  3. Minnesota
  4. Montana
  5. New Mexico
  6. Rhode Island
  7. Utah
  8. Vermont

Which State Is Best For Retirees?

Although many states do not tax your Social Security or retirement distributions, it’s important to thoroughly research all tax implications before making a move. Many states that don’t have income taxes often have higher sales taxes or property taxes. And depending on which city you decide to call home, you could also face substantial local taxes. Ultimately, your decision should come down to which state will offer you the best quality of life for your budget.