If you want to pay less when you retire, moving to one of the states that don’t tax retirement income might be one way to do that. So, if your retirement income includes Social Security benefits, distributions from a 401(k) or IRA, or a pension, you might want to consider one of these states.
Even though these states don't tax "traditional retirement income," you might still have to pay tax on other types of income you earn in retirement, such as from wages, interest, and dividends. (Federal income tax still applies in these states.)
Alaska
Alaska doesn’t tax your Social Security benefits, your pension, your 401(k) or IRA distributions. That’s because Alaska has no state income tax.
Alaska is one of the states with no inheritance or estate tax, which is great news for your heirs. And, you could get paid to live in the state through Alaska’s Permanent Fund Dividend, which was worth $1,312 last year.
There are a few other things to know about Alaska taxes:
- While there is 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.
Florida
Florida offers great tax breaks when it comes to retirement since there is no state income tax. And heirs won't pay an estate or inheritance tax if you die in the Sunshine State.
While there is a state sales tax in Florida, many essentials, including groceries, are tax-exempt.
Illinois
Illinois doesn’t tax any type of retirement income. Social Security benefits, pensions, IRA, and 401(k) distributions are all tax-exempt.
Illinois does have a flat income tax rate of 4.95%, so earnings from other sources (such as investment income) are taxable and there are other taxes to consider:
- 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.
Iowa
Iowa is one of the most tax-friendly states for retirees, 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 or
- SIMPLE retirement plans
- Social Security benefits
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.
Mississippi
Mississippi has 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.
(The 4.7% tax rate is set to gradually decrease each year until it reaches 4% in 2026.)
Things to know about other taxes 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
Nevada has no state income tax, which means your retirement income, investment income and wages are safe from state taxes. And your heirs won't be on the hook for inheritance or estate taxes either.
But, not everything in Nevada is tax-free:
- While homeowners aren't off the hook for property taxes in Nevada, the median tax bill is well below the national average.
- And, the state sales tax rate is 6.85%, which is higher than in most states.
New Hampshire
Retirement income is exempt from tax in New Hampshire since the state doesn't have a regular income tax. So, 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 Interest & Dividend tax is 3% for 2024.
Pennsylvania
Pennsylvania doesn’t tax pensions, distributions from IRAs and 401(k)s, or Social Security. Other types of income are taxed at a flat rate of 3.07%, which means any wages or investment income you earn in retirement are subject to tax.
There are 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. Also, 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.
- The tax rates in Pennsylvania range from 4.5% to 15% for other heirs.
South Dakota
Personal income isn’t taxed, so all your retirement income is exempt. Nor, will you pay state taxes on income from dividends or interest And your heirs won't pay an inheritance or estate tax in South Dakota.
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
Tennessee doesn't tax personal income, but you could still pay federal taxes for your Social Security benefits, pension, and 401(k) or IRA plan. There is also no inheritance or estate tax in Tennessee
But, 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.
Texas
Texas also no personal income tax, so you won't pay tax on retirement income or wages in you want to continue to work. And there is no estate or inheritance tax.
Here are some 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 increased the homestead exemption to $110,000 for homeowners 65 and older!
Washington
There is no state income tax on Social Security or pension income, 401(k), or IRA distributions, because Washington doesn't have a personal income tax.
However, 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.
- The estate tax exemption is $2,193,000.
- Tax rates for estates that exceed this threshold range from 10% to 20%.
Wyoming
Wyoming doesn'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.
There's even 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%.