Retiring from the workforce doesn't always mean you can stop paying income tax. You might need to pay federal taxes on your pension income, and depending where you live, you might pay state income taxes, too.
Most states tax at least a portion of the income from many types of retirement benefit plans. Your state might have a pension exclusion, but chances are it's limited based on your age and/or income. However, some states don't tax pension income no matter your age or how much money you have.
But, of course, just because a state doesn't tax your pension doesn't mean it won't tax other types of retirement income. Some states might not tax Social Security retirement benefits but will tax 401(k) and IRA distributions. It's always a good idea to see how each state taxes retirees before relocating. You wouldn't want an unpleasant surprise when it comes time to file your tax return.
Take a look at the 14 states that don't tax pension income (states are listed alphabetically).
Alabama
Pensions: Retiring to Alabama can be a smart move if you'll be relying heavily on a 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 (a retirement plan with fixed and pre-determined benefit amount). The state also exempts military retirement pay and income from government pensions.
401(k)s and IRAs: Not all retirement income is tax-exempt in Alabama. Distributions from traditional IRAs and 401(k) plans are taxable. However, the first $6,000 of retirement income received by anyone 65 years of age or older is tax-exempt.
Social Security Benefits: 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
Pensions: 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.
401(k)s and IRAs: You won't pay income tax on 401(k) and IRA distributions in Alaska either. Alaska doesn't tax those funds.
Social Security Benefits: Like most states, Alaska doesn't tax Social Security benefits.
Income Tax Range: Not applicable (no income tax).
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Florida
Pensions: If you're looking for a warmer climate, you might consider Florida. But there's more to like as a retiree than just the palm trees and sandy beaches. Florida doesn't have an income tax, so your pension won't be taxed there (assuming you satisfy the Florida residency requirements).
401(k)s and IRAs: Florida is good to retirees 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, Florida doesn't tax Social Security benefits, either.
Income Tax Range: Not applicable (no income tax).
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Hawaii
Pensions: Feel like taking up surfing in retirement? If so, Hawaii might be the place for you. If you want to avoid paying taxes on your pension, Hawaii can help you 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. 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.
401(k)s and IRAs: Distributions from 401(k) plans and IRAs are taxable in Hawaii.
Social Security Benefits: Hawaii doesn't 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).
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Illinois
Pensions: Illinois completely exempts private pension income from income 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%.
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Iowa
Pensions: As of January, 2023, 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 tax-exempt in Iowa and have been since 2014.
401(k)s and IRAs: 401(k) and IRA distributions are also tax-exempt in Iowa as of January, 2023. The same rules for public pension income exemption apply to 401(k) and IRA income.
Social Security Benefits: Iowa does not tax Social Security retirement benefits.
Income Tax Range: Single filers with income up to $6,000 are taxed at a 4.4% rate (up to $12,000 for joint filers). Single filers with income over $75,000 are taxed at a 6% rate (over $150,000 for joint filers). Beginning in tax year 2026, Iowa will have a flat 3.9% income tax rate.
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Mississippi
Pensions: Mississippi 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 (before age 59½).
401(k)s and IRAs: The same goes for 401(k) plan and IRA distributions. Mississippi doesn't tax distributions from these plans.
Social Security Benefits: Mississippi doesn't tax Social Security benefits, either.
Income Tax Range: Mississippi does not tax income under $10,000. Income over $10,000 is taxed at 5%, but that amount is set to decrease over the next few years (4.7% in 2024, 4.4% in 2025, and 4.0% in 2026).
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Nevada
Pensions: Retirees in Nevada are always winners when it comes to state income taxes. The Silver State won't tax your pension income 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.
Income Tax Range: Not applicable (no income tax).
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New Hampshire
Pensions: New Hampshire does not have 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: The same goes for Social Security benefits. There is no New Hampshire tax on them.
Income Tax Range: For 2023, there's a flat 4% tax on interest and dividends only. The rate will be 3% for 2024, 2% for 2025, and 1% for 2026. The tax will then be repealed on January 1, 2027.
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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.
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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).
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Tennessee
Pensions: Retirees in Tennessee don't pay tax on their pension income, because there's no income tax in Tennessee.
401(k)s and IRAs: There's also no Tennessee tax on 401(k) or IRA distributions.
Social Security Benefits: Tennessee retirees don't pay state income tax on Social Security retirement benefits.
Income Tax Range: Not applicable (no income tax).
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Texas
Pensions: Everything's bigger in Texas, except the tax bills. It is yet another state without a personal income tax. That means Texas will not tax your pension income.
401(k)s and IRAs: Texas won't tax your 401(k) or IRA withdrawals, either.
Social Security Benefits: Of course, because there's no income tax, there's no tax on your Social Security benefits in Texas.
Income Tax Range: Not applicable (no income tax).
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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 taxing your pension, because Washington 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). However, Washington imposes a 7% capital gains tax (tax on stocks, bonds, etc.) if annual profits exceed $250,000.
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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: Wyoming is also very taxpayer-friendly when it comes your retirement savings plans. There are no taxes on withdrawals from 401(k) plans and IRAs.
Social Security Benefits: Like most other states, Wyoming doesn't tax your Social Security benefits, either.
Income Tax Range: Not applicable (no income tax).
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