13 States That Don't Tax Retirement Income

Alaska income tax

Alaska won’t tax your Social Security benefits or your pension. Your 401(k) and IRA distributions won't be taxed by the state, either. That’s because Alaska has no state income tax. 

Alaska is one of the states with no inheritance or estate tax, which is good news for your heirs. Also, you could get paid to live in the state through Alaska’s Permanent Fund Dividend, which was worth $1,312 last year.

Here are some other things to know about taxes in Alaska:

• While there is no technically no sales tax in Alaska, businesses may pay excise taxes and often pass along those fees to the consumer by increasing prices.
• There are local sales taxes in Alaska, which can reach as high as 7.85% in some areas, according to the Tax Foundation.

Does Florida tax Social Security?

Sunshine and access to sandy beaches aren't the only reasons people retire in Florida. The state offers hefty tax breaks when it comes to retirement income (and other types of income).

Florida won't tax your retirement income because the state doesn't tax income at all. And heirs won't pay an estate or inheritance tax if you die in the Sunshine State.

Here are some other things you might want to know about Florida taxes:

• Lawmakers recently proposed a bill to eliminate Florida property tax, but that seems unlikely to happen anytime soon, if at all.
• There is a state sales tax in Florida, but many essentials, including groceries, are tax-exempt.

Does Illinois tax Social Security?

Illinois doesn’t tax Social Security or any other type of retirement income. Social Security benefits, pensions, IRA, and 401(k) distributions are tax-exempt. 

However, Illinois has a flat income tax rate of 4.95%, so earnings from other sources (such as investment income) are taxable. 

• Illinois has one of the highest gas taxes in the U.S.
• Sales tax is high in Illinois.
• The state taxes groceries (but at a reduced rate).
• Estates valued at more than $4 million are subject to Illinois' estate tax.

Taxes on retirement income in Iowa

Iowa is one of the most tax-friendly states for retirees. That’s largely because the state no longer taxes retirement income. Starting in tax year 2023, most retirement income is tax-exempt for retirees 55 and older. 

According to retirement income tax guidance released by the Iowa Department of Revenue, the following types of retirement income qualify for the exemption.

• Roth conversion income
• Distributions from qualified 401(k), 403(b), and 457(b) plans
• SEP plans
• SIMPLE retirement plans

Note: Other types of retirement income are also tax-exempt under the Iowa statute.

Social Security benefits are not taxed in Iowa. Other types of income (such as wages and investment income) are taxed between 4.4% and 5.7% in 2024. However, the state will move to a flat 3.9% tax rate in 2026.

Does Mississippi tax retirement income?

Mississippi is another state with a flat income tax rate, but the 4.7% tax rate doesn't apply to Social Security benefits, 401(k) and IRA distributions, or pensions. You will still pay tax on other types of income that exceed $10,000. 

In other Mississippi tax news, the 4.7% tax rate is set to gradually decrease each year until it reaches 4% in 2026. 

Here are some other things to know about tax in Mississippi.

• Mississippi taxes groceries at the full 7% tax rate.
• There is no estate tax in Mississippi.
• Mississippi doesn't have an inheritance tax.

Nevada retirement taxes

There is no state income tax in Nevada, which means your retirement income is safe from state taxes. You don't have to pay state taxes on investment income or wages either (if you continue working). And heirs won't be on the hook for inheritance or estate taxes since Nevada doesn't impose those taxes. 

However, not everything in Nevada is tax-free:

• Homeowners aren't off the hook for property taxes in Nevada, but the median tax bill is well below the national average.
• However, the state sales tax rate is 6.85%, which is higher than in most states.

Taxes in New Hampshire

Your retirement income is exempt from tax in New Hampshire since the state doesn't have a regular income tax. That means you won't pay tax on Social Security benefits, pensions, IRA, or 401(k) distributions. 

However, New Hampshire will tax interest and dividends (I&D) income, which includes savings account interest.

• New Hampshire's I&D tax is expected to be eliminated in 2025 through legislation. 
• The I&D tax is 3% for 2024.

Pennsylvania income tax

Pennsylvania won't tax pensions, distributions from IRAs and 401(k)s, or Social Security, but other types of income are taxed in Pennsylvania at a flat rate of 3.07%. That means any wages or investment income you earn in retirement is subject to tax. 

There are also local income taxes in Pennsylvania. So, if you plan to keep working or earn from investments, you might not save as much in taxes as you might think. On top of that, your heirs could pay a hefty inheritance tax.

• Children 21 and younger are exempt from Pennsylvania's inheritance tax.
• Children over the age of 21 pay an inheritance tax of 4.5% in Pennsylvania.
• Tax rates in Pennsylvania range from 4.5% to 15% for other heirs.

Income tax in South Dakota

South Dakota doesn't tax personal income, so all your retirement income is exempt. You also won't pay state taxes on income from dividends or interest in South Dakota. And your heirs won't pay an inheritance or estate tax in South Dakota.

Here are some other things to know about tax in South Dakota.

• Groceries are taxable at a reduced rate of 4.2%.
• South Dakota does not offer a grocery tax credit.

Tennessee retirement taxes

Like many other states on this list, Tennessee doesn't tax personal income. But you may still pay federal taxes for your Social Security benefits, pension, and 401(k) or IRA plan. There is no inheritance or estate tax in Tennessee

However, not all taxes in the Volunteer State are low. 

• Groceries are taxed at 4% (plus local sales taxes).
• The state sales tax on certain other goods and services is 7%, which is one of the highest rates in the country.

Does Texas tax Social Security?

Texas is yet another state with no personal income tax. That means you won't pay tax on retirement income, and if you choose to work in retirement, your wages won't be taxed in the Lone Star State either. And Texas won't tax your heirs when you pass since there is no estate or inheritance tax.

Here are some other things to know about taxes in Texas:

• Texas does impose a sales tax, which can reach as high as 8.2% in some areas of the state.
• A Texas property relief package approved last year will increase the homestead exemption to $110,000 for homeowners 65 and older.

Washington state income tax

There is no state income tax on Social Security or pension income, 401(k), or IRA distributions in Washington. That's because Washington doesn't have a personal income tax.

However, as Kiplinger reported, the state's Supreme Court upheld Washington's capital gains tax. This means you'll pay 7% on sales of some capital assets (such as stocks or bonds). This tax only applies to gains that exceed $250,000 annually.

If you have a sizeable estate, here are some things you should know about Washington's estate tax in 2024.

• Washington's estate tax exemption is $2,193,000.
• Tax rates for estates that exceed the threshold range from 10% to 20%.

Wyoming taxes for retirees

 Wyoming is one of the states that don't pension income, and there's no state tax on income from interest and dividends, either. Wyoming also won't tax personal or corporate income. 

And there's more to like about taxes in Wyoming.

• There are no estate or inheritance taxes in the Equality State.
• Combined state and local sales taxes don't exceed 6%.

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