13 States That Won't Tax Your Retirement Income

Alaska

Alaska won’t tax your Social Security benefits or your pension. Your 401(k) and IRA distributions are also tax-free in Alaska. That’s because Alaska has no state income tax. 

Alaska has no state 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 $3,284 in 2022. 

Florida

Florida won't tax your retirement income because the state doesn't tax income at all. Your heirs won't pay an estate or inheritance tax in Florida either. 

Also: A recently passed $1.3 billion Florida tax relief package made several items exempt from sales tax.

Illinois

You won't need to pay any state income tax on your retirement income in Illinois. 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.

Iowa

Iowa joins the list of states that don't tax 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 are 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 new 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 6% in 2023. However, the state will move to a flat 3.9% tax rate in 2026.

Mississippi

Mississippi is another state with a flat income tax rate, but the 5% 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 5% 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

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 choose to continue working). And heirs won't be on the hook for inheritance or estate taxes since Nevada doesn't impose those taxes. 

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, but that tax is expected to be eliminated in 2027 through legislation.

• New Hampshire's I&D tax is 4% for 2023.
• The tax reduces to 3% in 2024.
• The I&D tax drops to 2% in 2025.
• In 2026, the I&D tax falls to 1%.
• New Hampshire plans to not tax interest and dividends by 2027.

Pennsylvania

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 are 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 12% for other heirs.

South Dakota

South Dakota doesn't tax personal income, so all your retirement income is exempt. You won't pay state taxes on income from dividends or interest in South Dakota either. 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

Like many other states on this list, Tennessee doesn't tax personal income. But you will need to focus on federal taxes for your Social Security benefits, pension, and 401(k) or IRA plan.

There is no inheritance or estate tax in Tennessee, but groceries are taxed at 4% (plus local sales taxes).

Texas

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 Texas either. And Texas won't tax your heirs when you pass since there is no estate or inheritance tax.

Washington

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

However, as Kiplinger previously reported, the Washington Supreme Court recently 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 2023.

• Washington's estate tax exemption is $2,193,000 in 2023.
• Tax rates for estates that exceed the threshold range from 10% to 20%.

Wyoming

Your retirement income won't be taxed in Wyoming, nor will income from interest and dividends. There is no personal income tax in the state, and there is no corporate income tax either. Wyoming also has no estate or inheritance taxes.