Katelyn Washington
Pensions aren't as common as they used to be. Over the past few decades, there’s been a significant shift away from traditional pension plans, particularly in the private sector.
According to the latest government data, about 15% of private sector workers had access to defined benefit plans. (Most employees now rely on 401(k)s and other similar retirement savings options.)
However, for those who have them (around 30% of older adults in the U.S. reportedly rely on pension income), pensions can provide a steady and reliable source of funds. This can help to cover everyday expenses and enhance financial security during retirement.
Are pensions taxable?
When it comes to taxes, pensions can be a bit tricky. Generally speaking, pension income is taxable at the federal level, so you have to account for that when planning your retirement budget. For more information, see How the IRS Taxes Retirement Income.
However, as Kiplinger reports, taxes in retirement vary from state to state. For instance, some states tax pension income fully, while others offer partial or complete exemptions.
For a state-by-state breakdown, see Kiplinger's guide: Retirement Taxes: How All 50 States Tax Retirees.
Before making any big decisions on where to retire, it's good to know how your pension and other retirement income will be taxed in your state of choice. That way, you can potentially avoid unwelcome surprises when it's time to file your tax return.
What about Social Security?
All this talk of pensions may have you wondering about states that tax Social Security.
As of 2025, nine states tax Social Security benefits to varying degrees. Similar to pensions, the rules differ among the states based on factors like age and income. For example, some states tax benefits for individuals under a certain age, while others provide exemptions based on adjusted gross income (AGI).
Meanwhile, many states either don't tax Social Security income or offer specific exemptions. And recently, two states eliminated taxes on Social Security benefits.
For more information on states and Social Security taxes, see Kiplinger's report States That Tax Social Security Benefits in 2025.
15 states that don’t tax your pension income
Some states don’t tax your retirement income at all, but others may have certain exemptions on private or government pensions. Here’s our list of the 15 states that will give you a tax break on your retirement income. (States are listed alphabetically.)
Alabama
Retiring to Alabama can be worthwhile for folks looking to retain their pension. If you're retiring from the private sector, Alabama won't tax your pension income if it comes from a defined benefit retirement plan. That’s a retirement plan with a fixed and pre-determined benefit amount. The state also exempts military retirement pay and income from government pensions.
Not all retirement income is tax-exempt in Alabama. Distributions from traditional IRAs and 401(k) plans are taxable. The first $6,000 of retirement income received by anyone 65 years of age or older is tax-exempt.
Alabama also doesn't tax Social Security benefits. That's another big plus for retirees in the state.
Income Tax Range: For all taxable income, including 401(k) funds and IRA distributions, the lowest Alabama tax rate is 2% (on up to $1,000 of taxable income for joint filers and up to $500 for all others), while the highest rate is 5% (on more than $6,000 of taxable income for joint filers and more than $3,000 of taxable income for all others).
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Alaska
In Alaska, you don't have to pay income tax on your pension — or on any income, for that matter. It's one of the states with no income tax.
Additionally, you won't pay income tax on 401(k) and IRA distributions in Alaska either. Like most states, Alaska doesn't tax Social Security benefits.
The savings keep on piling up in the Last Frontier, as the state does not have an estate or inheritance tax. That may be reasonable for some folks who don’t mind moving to a chilly state and making the most of their pension.
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Florida
If you're looking for a warmer climate, you might consider Florida. But there's more reasons to retire to Florida than just the palm trees and sandy beaches. The Sunshine State doesn't have an income tax, so your pension won't be taxed there.
Florida is also good to retirees when it comes to 401(k)s and IRAs. There are no state taxes on distributions from these retirement savings plans.
As you may have guessed, Florida doesn't tax Social Security benefits, either.
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Hawaii
Hawaii doesn't tax all pension income, but there are some things you should know to avoid a surprise at tax time.
- Retirement distributions from a private or public pension plan are tax-free in Hawaii only if you didn't make contributions to the plan.
- Employee-contributed retirement plans are partially taxable in Hawaii. (This means you will only pay income tax on the value increase resulting from your contributions.)
Distributions from 401(k) plans and IRAs are taxable in Hawaii.
For income that is taxed, the lowest Hawaii tax rate is 1.4% (on taxable income up to $4,800 for joint filers and up to $2,400 for single filers). The highest rate is 11% (on more than $400,000 of taxable income for joint filers and more than $200,000 for single filers).
Lastly, Hawaii doesn't tax Social Security benefits.
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Illinois
Illinois is one of the states that won't tax your retirement income, including income from private pensions (as long as it's from a qualified employee benefit plan). You won't pay tax on payments from government or military pensions, either.
Distributions from a 401(k) plan are tax-free if the plan is a qualified employee benefit plan. Additionally, IRA distributions and Social Security benefits are not taxed in Illinois making the state a tax-friendly haven for retirees.
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Iowa
Eligible Iowa residents do not need to pay tax on qualified pension income, including income from private pensions. To qualify for the exemption, taxpayers must be at least 55 by the end of the tax year. Additionally, one spouse may qualify for the income exemption even if the other spouse does not. This means that Iowa can tax one spouse and not the other.
Federal government pensions and military pensions are also tax-exempt in Iowa.
Just like other states featured in our list, Iowa won't tax 401(k) and IRA distributions. The same rules for public pension income exemption apply to 401(k) and IRA income.
Additionally, Iowa does not tax Social Security retirement benefits.
As for tax rates, they will get slightly better in the near future. Iowa will phase down over the next two years to a single tax rate for all taxpayers. In 2025, there will be two Iowa income tax brackets brackets with a top rate of 4.82%. Beginning in tax year 2026, Iowa will have a flat 3.9% income tax rate.
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Mississippi
Mississippi is ranked by Kiplinger as one of the most tax-friendly states for retirees. That's partially because the state doesn't tax pensions (as long as it isn't for early retirement).
As for taxes on 401(k) and IRS distributions, you won’t have to worry. Mississippi doesn't tax distributions from these plans. The state doesn’t tax Social Security benefits, either.
As for income tax rates, earnings are over $10,000 are taxed at 4.7% for 2024. During tax year 2025, the same amount will be taxed at a rate of 4.4%. By 2026, any excess income over $10,000 will be taxed at 4%.
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Nevada
Nevada won't tax your pension income because it doesn't have an income tax.With no income tax, there's also no tax on 401(k) or IRA distributions.
Social Security benefits are also tax-free, and there are no estate or inheritance taxes in Nevada.
However, before you pack your bags consider other taxes. Nevada has a 6.85% state sales tax and an average combined state and local sales tax rate of 8.25%.
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New Hampshire
New Hampshire does not have a general income tax. The state currently imposes a tax on interest and dividends (I&D) instead (although it's being phased out and will be completely repealed in 2025). That means there is no tax on your pension income if you retire to the Granite State.
With no income tax, your 401(k) and IRA distributions are tax-free, too. Furthermore, there is no state tax on Social Security benefits.
Income Tax Range: For 2024, there's a flat 3% tax on interest and dividends only (4% for 2023), but this tax is now fully repealed as of 2025.
- 3% for 2024
- 2% for 2025
- 1% for 2026.
- Repealed on January 1, 2027.
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Pennsylvania
There is some good news for retirees in Pennsylvania. For one, the Keystone State doesn't tax pension income you receive from an eligible employer-sponsored retirement plan (unless you retire early).
As for your 401(k) and IRA distributions, Pennsylvania won't tax these (unless you take them early). Your Social Security benefits aren't taxable in Pennsylvania.
Income Tax Range: Pennsylvania has a flat income tax rate of 3.07%. However, municipalities and school districts can tax your income, too.
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South Dakota
South Dakota has no income tax, so there's no state tax on your pension income. More good news: there is no South Dakota income tax on withdrawals from your 401(k) or IRA, either.
The state won't tax your Social Security retirement benefit, estate, or inheritance, either.
So where will you see taxes? South Dakota has a 4.20% state sales tax and levies an average combined state and local sales tax rate of 6.11%. It also has a 1.01% effective property tax rate, according to the latest data from the Tax Foundation.
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Tennessee
Retirees in Tennessee don't pay tax on their pension income, because there's no income tax in the state. Your 401(k) or IRA distributions won’t face taxes, either.
Tennessee retirees don't pay state income tax on Social Security retirement benefits, nor do they pay taxes on estate or inheritance.
Still, Tennesseans face a 7% state sales tax that rises to an average combined state and local sales tax of 9.55%. That’s quite high, compared to other states featured in this list.
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Texas
No state tax on your pension income might be one reason to move to Texas. In fact, the Lone Star State doesn't impose an income tax at all.
Of course, because there's no income tax, there's no tax on your Social Security benefits in Texas. Your 401(k) or IRA withdrawals won’t be taxed unless funds are taken out early.
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Washington
In the great Northwest, Washington State could be a terrific place to retire if you're living off a pension. That's because Washington is yet another state that doesn't impose an income tax.
The Evergreen State won't tax distributions from your 401(k) or IRA. Social Security benefits and estates are tax-exempt in Washington, too.
While the state doesn’t have income taxes, you’ll get taxed in other ways. Washington imposes a 7% capital gains tax (tax on stocks, bonds, etc.) if annual profits exceed $262,000.
Folks also face a 6.50% state sales tax and an average combined state and local sales tax of 9.38%. Property taxes also average 0.76% for owner-occupied homes.
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Wyoming
Wyoming doesn't have an income tax, so you don't have to worry about a state tax hit on your pension.
Wyoming is also very taxpayer-friendly when it comes to your retirement savings plans. There are no taxes on withdrawals from 401(k) plans and IRAs. Like most other states, Wyoming doesn't tax your Social Security benefits, estate, or inheritance.
You’ll get taxed while you’re shopping, though. In Wyoming, the state sales tax rate is 4%. The combined state and local sales rate sits at 5.44%, on average. As for homeowners, they can expect a 0.55% effective property tax rate on their real estate.
Not to mention, Wyoming levies a 24-cent per gallon gas tax, which is relatively low and was one penny shy of making Kiplinger’s rankings among the 10 states with the lowest gas tax in 2025.
Those tax rates aren’t that high compared to the rest of the country, ranking Wyoming’s tax system as the best on this list.
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