According to a recent survey from Natixis Investment Managers, the average age most Americans plan to retire at is 62. For those in the younger generations, it’s even earlier. 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.
12 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 12 that don’t tax distributions from pensions or defined contribution plans.
- Alaska
- Florida
- Illinois
- Mississippi
- Nevada
- New Hampshire
- Pennsylvania
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
These 12 states also refrain from collecting income taxes on your Social Security benefits. All except three – Illinois, 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.
States That Won’t Tax Your Pension Distributions
In addition to the states listed above, three more states won’t tax your pension distributions:
- Alabama
- Iowa
- Hawaii
All of these states, however, will tax your 401(k) or traditional IRS distributions. 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 Dakota (no state income tax)
- Tennessee (no state income tax)
- Texas (no state income tax)
- Utah
- 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 (2024)
- New Mexico
- Oregon
- South Carolina
- Vermont
- Virginia
The District of Columbia partially taxes military retirement benefits, as well. It’s also 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 2023, California is the only state that fully taxes military retirement income. Assembly Bill 46, however, seeks to exempt all military pensions from state income taxes. It will be considered during the next legislative session in 2024.
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.