If you’re looking to lower your tax bill in retirement, you’ll probably want to think hard before retiring to one of these eight states. California, Hawaii, Iowa, Minnesota, New Jersey, New York, Oregon and Vermont have the nation’s highest top state income tax rates. Income taxes also run high in Washington, D.C. California has the highest income tax rate at 13.3%.
Keep in mind, though, that some of these states exclude some retirement income, which softens the blow. New York, for example, has a top income tax rate of 8.82% but excludes public pensions and up to $20,000 of other types of retirement income. Oregon, on the other hand, taxes most retirement income at its top tax rate of 9.9%.
Kiplinger's state-by-state guide to taxes on retirees is updated annually based on information from state tax departments, Wolters Kluwer Tax & Accounting and the Tax Foundation. All data are for the 2017 tax year unless otherwise noted.
California
State Income Tax Range
- Low: 1% (on up to $16,030 of taxable income for married joint filers and up to $8,015 for those filing individually)
- High: 13.3% (on more than $1,074,996 for married joint filers and $1 million for those filing individually)
Tax on Social Security
Benefits are not taxed.
Exemptions for Other Retirement Income
Railroad Retirement benefits are exempt. All private, local, state and federal pensions are fully taxed. There is a 2.5% state penalty on early distributions from retirement plans, annuities and IRAs.
IRAs
Taxable at ordinary income tax rates. There is a 2.5% penalty on early distributions.
401(k)s and Other Defined-Contribution Employer Retirement Plans
Taxable at ordinary income tax rates. There is a 2.5% penalty on early distributions.
Private Pensions
Taxable at ordinary income tax rates.
Public Pensions
Railroad retirement benefits exempt. All other public pensions are taxable at ordinary income tax rates.
For details on other state taxes as well as state tax breaks for retirees see the complete guide to taxes on retirees in California.
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Hawaii
State Income Tax Range
- Low: 1.4% (on taxable income up to $4,800 for married couples filing jointly; on up to $2,400 for married couples filing separately and individual filers)
- High: 8.25% (on taxable income over $48,000 for married couples filing jointly and surviving spouses; on over $96,000 for married couples filing separately and individual filers)
Tax on Social Security
Benefits are not taxed.
Exemptions for Other Retirement Income
First-tier Railroad Retirement benefits and military, federal, state and local pensions are exempt. All out-of-state government pensions are exempt. Also, private employer-funded pension plans that employees did not contribute to are exempt. Distributions from private, employer-funded pension plans received upon retirement are partially taxed by the state if the employee contributed to the pension plan. Employee earnings are taxed under these plans, but employee contributions are exempt.
IRAs
IRA distributions are fully taxed if funded by an individual, rather than the employer through a rollover from an employer plan.
401(k)s and Other Defined-Contribution Employer Retirement Plans
Distributions are taxed. If the employer provided matching contributions, however, part of the plan is considered to be employer-funded and not taxed.
Private Pensions
Private employer-funded pension plans that employees did not contribute to are exempt.
Public Pensions
First-tier Railroad Retirement benefits and military, federal, state and local pensions are exempt. All out-of-state government pensions are exempt.
For details on other state taxes as well as state tax breaks for retirees see the complete guide to taxes on retirees in Hawaii.
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Iowa
State Income Tax Range
- Low: 0.36% (on up to $1,554 of taxable income)
- High: 8.98% (on taxable income over $69,930)
Tax on Social Security
Benefits are not taxed.
Exemptions for Other Retirement Income
Taxpayers 55 or older or disabled (or a surviving spouse or a survivor having an insurable interest in an individual who would have qualified for the exclusion during the year) can exclude as much as $6,000 if single ($12,000 if married) of taxable income from a pension, annuity, distributions from an IRA or self-employed retirement plan, deferred compensation or other retirement-plan benefits. Out-of-state government pensions qualify for exemptions.
IRAs
Qualifies for exemptions.
401(k)s and Other Defined-Contribution Employer Retirement Plans
Qualifies for exemptions.
Private Pensions
Qualifies for exemptions.
Public Pensions
Qualifies for exemptions. Military benefits are exempt.
For details on other state taxes as well as state tax breaks for retirees see the complete guide to taxes on retirees in Iowa.
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Minnesota
State Income Tax Range
- Low: 5.35% (on less than $25,390 of taxable income for single filers and on less than $37,110 for joint filers)
- High: 9.85% (on more than $155,911 of taxable income for single filers and on more than $261,510 for joint filers)
Tax on Social Security
Social Security income is taxable, but a married couple can subtract $4,500 of their federally taxable Social Security benefits from their state income. (The break is $3,500 for single and head of household, $2,250 for married separate filers). Make more than $77,000 of income (for married filers) and the break gets phased out, and is gone for those with more than $99,500 of taxable income.
Exemptions for Other Retirement Income
Railroad Retirement benefits are not taxed by Minnesota. Most pensions, including federal pensions, are taxable by Minnesota; military pensions are exempt. Taxpayers 65 and older may exempt up to $9,600 for single filers and up to $12,000 for joint filers if their income falls under certain limits. The exemption is phased out for those making more than $14,500 (single) and $18,000 (joint). Those making more than $33,700 (single) and $42,000 (joint) are ineligible.
IRAs
Qualifies for exemption.
401(k)s and Other Defined-Contribution Employer Retirement Plans
Qualifies for exemption.
Private Pensions
Qualifies for exemption.
Public Pensions
Qualifies for exemption.
For details on other state taxes as well as state tax breaks for retirees see the complete guide to taxes on retirees in Minnesota.
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New Jersey
State Income Tax Range
- Low: 1.4% (on up to $20,000 of taxable income)
- High: 8.97% (on taxable income over $500,000). New Jersey allows localities to impose an income tax; the average levy is 0.5%, per the Tax Foundation.
Tax on Social Security
Benefits are not taxed.
Exemptions for Other Retirement Income
Railroad Retirement benefits and military pensions are not taxable. Residents 62 or older may exclude all or part of their taxable pensions, annuities and IRA withdrawals if their gross income for the entire year before subtracting any pension exclusion does not exceed $100,000. The maximum amount excluded depends on your filing status. If married and filing a joint return, you may exclude up to $40,000 in 2017. If you file as single, head of household, or qualifying widow or widower, you may exclude up to $30,000 in 2017. If you are married and file a separate return, you may exclude up to $20,000 in 2017. Those amounts will gradually rise so that by 2020 joint filers can exclude up to $100,000; single filers, up to $75,000; and married filing separately, up to $50,000.
IRAs
Qualifies for pension exemption.
401(k)s and Other Defined-Contribution Employer Retirement Plans
Qualifies for pension exemption.
Private Pensions
Qualifies for pension exemption.
Public Pensions
Qualifies for pension exemption. Military pensions are not taxable.
For details on other state taxes as well as state tax breaks for retirees see the complete guide to taxes on retirees in New Jersey.
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New York
State Income Tax Range
- Low: 4.0% (on up to $8,5000 of taxable income for single filers and up to $17,150 for married couples filing jointly)
- High: 8.82% (on taxable income over $1,070,550 for single filers and over $2,155,350 for married couples filing jointly). New York allows localities to impose an income tax; the average levy is 2.11%, per the Tax Foundation.
Tax on Social Security
Benefits are not taxed.
Exemptions for Other Retirement Income
Military, civil-service, and New York state and local government pensions are exempt. Up to $20,000 of qualified private pensions and annuity income for people 59 1/2 and older are also exempt. Out-of-state government pensions can be deducted as part of the $20,000 exemption. Railroad Retirement benefits are not taxed.
IRAs
Qualifies for the retirement-income exemption.
401(k)s and Other Defined-Contribution Employer Retirement Plans
Qualifies for the retirement-income exemption.
Private Pensions
Qualifies for the retirement-income exemption.
Public Pensions
Military, civil service, and New York state and local government pensions are exempt. Out-of-state government pensions qualify for the retirement-income exemption.
For details on other state taxes as well as state tax breaks for retirees see the complete guide to taxes on retirees in New York.
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Oregon
State Income Tax Range
- Low: 5% (on up to $3,300 of taxable income for single filers and up to $6,600 for married couples filing jointly)
- High: 9.9% (on taxable income over $125,000 for single filers and over $250,000 for married couples filing jointly). Residents can deduct some of their federal income tax from state taxable income. The subtraction for 2017 is limited to $6,500 ($3,250 if married filing separately), and is further limited for high-income earners.
Tax on Social Security
Benefits are not taxed.
Exemptions for Other Retirement Income
Most new residents will find that their pension income, along with most other income, is taxed by Oregon. If you receive a U.S. government pension, however, you may be entitled to subtract part or all of that pension on your Oregon individual income tax return. The state also does not tax Railroad Retirement benefits. And depending on your age and income, you may be entitled to a retirement-income credit on your Oregon return. The credit is the lesser of your tax liability or 9% of taxable pension income. Oregon also allows a credit for the elderly or disabled if you qualify for the federal elderly-or-disabled credit; however, you cannot claim this credit if you are claiming the retirement-income credit. The Oregon elderly-or-disabled credit is 40% of the federal credit. Oregon allows residents to subtract their current year's federal income tax liability, after credits, up to $6,250, based on income and filing status.
IRAs
Qualifies for retirement-income credit.
401(k)s and Other Defined-Contribution Employer Retirement Plans
Qualifies for retirement-income credit.
Private Pensions
Qualifies for retirement-income credit.
Public Pensions
Qualifies for retirement-income credit. Also, some or all of federal pension income may be subtracted from Oregon taxable income.
For details on other state taxes as well as state tax breaks for retirees see the complete guide to taxes on retirees in Oregon.
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Vermont
State Income Tax Range
- Low: 3.55% (on up to $37,950 of taxable income for singles and up to $63,350 for joint filers)
- High: 8.95% (on taxable income over $416,700 for single filers and over $421,900 for joint filers)
Tax on Social Security
Social Security benefits are taxed to the extent they are taxed at the federal level.
Exemptions for Other Retirement Income
Railroad Retirement benefits are exempt, but all other retirement income is taxed. Out-of-state government pensions are fully taxed.
IRAs
Taxable at ordinary income tax rates.
401(k)s and Other Defined-Contribution Employer Retirement Plans
Taxable at ordinary income tax rates.
Private Pensions
Taxable at ordinary income tax rates.
Public Pensions
Taxable at ordinary income tax rates.
For details on other state taxes as well as state tax breaks for retirees see the complete guide to taxes on retirees in Vermont.
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Also: Washington, D.C.
District Income Tax Range
- Low: 4% (on taxable income up to $10,000)
- High: 8.95% (on taxable income above $1,000,000)
Tax on Social Security
Benefits are not taxed.
Exemptions for Other Retirement Income
The District doesn't offer exemptions on other retirement income.
IRAs
Taxable at ordinary income tax rates.
401(k)s and Other Defined-Contribution Employer Retirement Plans
Taxable at ordinary income tax rates.
Private Pensions
Taxable at ordinary income tax rates.
Public Pensions
All state government pensions are fully taxed.
For details on other state taxes as well as state tax breaks for retirees see the complete guide to taxes on retirees in Washington, D.C..
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