14 States That Won't Tax Your Pension
Some states have pension exclusions with limitations based on age and/or income. But these states don't tax pension income at all, no matter how old you are or how much money you have.
Congratulations if you're one of the lucky few who still have a traditional pension (a.k.a., a defined benefit plan). But once you've retired, remember that Uncle Sam generally taxes payments from pensions as ordinary income.
Will your state tax your pension income, too? It depends on where you live. Most states tax at least a portion of income from private sector defined benefit plans. Your state might have a pension exclusion, but chances are it's limited based on your age and/or income. However, a handful of states don't tax pension income at all, no matter how old you are or how much money you have. Good for you if you retire in one of those states!
But, of course, just because a state doesn't tax your pension doesn't mean it won't tax some other form of income you're counting on in retirement. Alabama, for example, doesn't tax pensions or Social Security benefits, but it will tax distributions from a 401(k) plan. Bottom line: Make sure you check out a state's overall tax environment for retirees before relocating there for your golden years.
Take a look at the 14 states that don't tax pension income (states are listed alphabetically). It could end up saving you thousands of dollars if you're thinking of moving to a new state when you retire.
Alabama
Pensions: Retiring to Alabama can be a smart move if you'll be relying heavily on a pension in your golden years. If you're retiring from the private sector, Alabama won't tax your pension income if it comes from a defined benefit retirement plan. The state also exempts military retirement pay and income from a long list of government pensions.
401(k)s and IRAs: While the Yellowhammer State is pretty good to retirees when it comes to taxes, it doesn't exempt all retirement income. Distributions from traditional IRAs and 401(k) plans are taxed as ordinary income (although certain distributions may only be partially taxable).
Social Security Benefits: Alabama doesn't tax Social Security benefits, though. That's another big plus for retirees in the state.
Income Tax Range: For 401(k) funds, IRA distributions or any other ordinary income, 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).
For more information, see the Alabama State Tax Guide for Retirees.
Alaska
Pensions: Up in Alaska, you don't have to pay income tax on your pension—or on any income, for that matter. It's one of a handful of states with no income tax.
401(k)s and IRAs: Ditto for 401(k) and IRA distributions. Alaska doesn't tax these funds.
Social Security Benefits: Like most states, Alaska doesn't tax Social Security benefits.
Income Tax Range: Not applicable (no income tax).
For more information, see the Alaska State Tax Guide for Retirees.
Florida
Pensions: If you're looking for a warmer climate, there's always Florida. But there's more to like as a retiree than just the palm trees and sandy beaches. It's well known that the Sunshine State doesn't have an income tax, so your pension won't be taxed there.
401(k)s and IRAs: Florida is good to seniors when it comes to 401(k)s and IRAs, too. There are no state taxes on distributions from these retirement savings plans.
Social Security Benefits: As you may have guessed, the Sunshine State doesn't tax Social Security benefits, either.
Income Tax Range: Not applicable (no income tax).
For more information, see the Florida State Tax Guide for Retirees.
Hawaii
Pensions: Feel like taking up surfing in your later years? If so, the Aloha State might be the place for you to retire. Want to avoid taxes on your pension? Hawaii can help you out with that, too. Retirement distributions from a private or public pension plan are tax-free in Hawaii—that is, as long as you didn't make contributions to the plan. You will be taxed on any portion of your pension income attributable to employee contributions you made.
401(k)s and IRAs: Distributions from 401(k) plans and IRAs are generally treated the same for Hawaii tax purposes as they are for federal tax purposes. However, if your employer made matching contributions to your 401(k) plan, an additional state deduction may be available for the employer-funded portion of distributions from the plan. In addition, if a lump-sum distribution from an otherwise tax-free pension plan is rolled over into an IRA, distributions out of the rollover IRA are tax-free as well.
Social Security Benefits: Hawaii does not tax Social Security benefits.
Income Tax Range: 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).
For more information, see the Hawaii State Tax Guide for Retirees.
Illinois
Pensions: The Prairie State completely exempts private pension income from tax as long as it's from a qualified employee benefit plan. You won't pay tax on payments from government or military pensions, either.
401(k)s and IRAs: Illinois is very taxpayer-friendly when it comes to 401(k) plans and IRAs, too. Distributions from a 401(k) plan are tax-free if the plan is a qualified employee benefit plan. IRA distributions are not taxed, either.
Social Security Benefits: Illinois also doesn't tax Social Security benefits.
Income Tax Range: The Illinois income tax rate is a flat 4.95%.
For more information, see the Illinois State Tax Guide for Retirees.
Mississippi
Pensions: The Magnolia State is a fairly taxpayer-friendly state for retirees. One reason is that the state doesn't tax private or government pension income — as long as it isn't for early retirement (that is, before age 59½).
401(k)s and IRAs: The same goes for 401(k) plan and IRA distributions. Mississippi doesn't tax them as long as they aren't early distributions.
Social Security Benefits: Mississippi doesn't tax Social Security benefits, either, so you can spend more of your retirement check on catfish and Mississippi mud pie.
Income Tax Range: Mississippi's lowest tax rate is 3% (on taxable income from $4,001 to $5,000), and its top rate is 5% (on taxable income of more than $10,000).
(Note: Starting in 2022, the lowest rate will be 4%, which will be applied to taxable income from $5,001 to $10,000.)
For more information, see the Mississippi State Tax Guide for Retirees.
Nevada
Pensions: Retirees in Nevada are always winners when it comes to state income taxes. The Silver State won't tax your pension income—or any of your other income, for that matter, because it doesn't have an income tax.
401(k)s and IRAs: With no income tax, there's also no tax on 401(k) or IRA distributions.
Social Security Benefits: Social Security benefits are not taxed in Nevada, either. That means you'll have more money for the slots or blackjack tables … if you're into that sort of thing.
Income Tax Range: Not applicable (no income tax).
For more information, see the Nevada State Tax Guide for Retirees.
New Hampshire
Pensions: New Hampshire is the only New England state without a general income tax. The state currently imposes a tax on interest and dividends instead (although it's being phased out and will be completely repealed in 2027). That means no tax on your pension income if you retire to the Granite State.
401(k)s and IRAs: With no income tax, your 401(k) and IRA distributions are tax-free, too.
Social Security Benefits: Same goes for Social Security benefits … no New Hampshire tax on them.
Income Tax Range: A flat 5% tax on interest and dividends only.
For more information, see the New Hampshire State Tax Guide for Retirees.
Pennsylvania
Pensions: There's plenty of good news for retirees in Pennsylvania. For one thing, the Keystone State doesn't tax pension income you receive from an eligible employer-sponsored retirement plan (except if you retire early).
401(k)s and IRAs: As with pension income, money you receive from a 401(k) plan or IRA after retiring (except in early retirement) is not taxed by Pennsylvania.
Social Security Benefits: Your Social Security benefits aren't taxable in Pennsylvania, either.
Income Tax Range: Pennsylvania has a flat income tax rate of 3.07%. However, municipalities and school districts can tax your income, too.
For more information, see the Pennsylvania State Tax Guide for Retirees.
South Dakota
Pensions: South Dakota is a pretty good state for retirees. With no income tax, there's no tax on your pension income.
401(k)s and IRAs: Making things even better, there's also no South Dakota tax on withdrawals from your 401(k) or IRA.
Social Security Benefits: And, of course, no income tax means no tax on Social Security benefits, either.
Income Tax Range: Not applicable (no income tax).
For more information, see the South Dakota State Tax Guide for Retirees.
Tennessee
Pensions: Retirees in the Volunteer State don't pay tax on their pension income, because there's no income tax in Tennessee. There used to be a tax on interest and dividends, but 2020 was the last year for that tax.
401(k)s and IRAs: There's also no Tennessee tax on money taken out of your 401(k) account or IRA.
Social Security Benefits: Tennessee retirees also collect Social Security without paying a state tax on it.
Income Tax Range: As mentioned above, there was a tax on interest and dividend income before 2021. For 2020, it was a flat 1% tax. But the rate was reduced to 0% in 2021 and later.
For more information, see the Tennessee State Tax Guide for Retirees.
Texas
Pensions: Everything's bigger in Texas … except the tax bills. You can tip your ten-gallon hat to the Lone Star State, because it doesn't have a personal income tax. That means the state will keep its hands off all your pension income.
401(k)s and IRAs: Texas won't touch your 401(k) or IRA withdrawals, either. So spend some of that money on a nice pair of cowboy boots or some Texas barbeque instead of state taxes.
Social Security Benefits: Of course, because there's no income tax, there's no tax on your Social Security benefits in Texas, either.
Income Tax Range: Not applicable (no income tax).
For more information, see the Texas State Tax Guide for Retirees.
Washington
Pensions: In the great Northwest, Washington State is a terrific place to retire if you're living off a pension. You can sit back, relax and enjoy your cup of coffee without having to worry about the state taking a bite out of your pension, because the Evergreen State doesn't have an income tax.
401(k)s and IRAs: In fact, none of your income from retirement funds is going to take a state tax hit, including income from your 401(k)s and IRAs.
Social Security Benefits: Social Security benefits escape Washington taxes, too.
Income Tax Range: Not applicable (no income tax). [Note that, beginning in 2022, Washington will impose a 7% tax on the sale or exchange of certain long-term capital assets if the profits exceed $250,000 annually. However, the constitutionality of the Washington capital gains tax is being challenged in court.]
For more information, see the Washington State Tax Guide for Retirees.
Wyoming
Pensions: Wyoming doesn't have an income tax, so you don't have to worry about a state tax hit on your pension. That makes retiring to a home on the range a pretty smart move.
401(k)s and IRAs: The Cowboy State is also very taxpayer-friendly when it comes your retirement savings plans—no taxes on withdrawals from 401(k) plans and IRAs.
Social Security Benefits: Like most other states, Wyoming doesn't take a share of your Social Security benefits, either.
Income Tax Range: Not applicable (no income tax).
For more information, see the Wyoming State Tax Guide for Retirees.
