Key Takeaways
Forty-two states don’t tax Social Security benefits, giving many retirees a break on at least one major source of income.
Some states also exempt pension income, retirement account withdrawals, or military retirement pay from state taxes.
Nine states have no broad individual income tax, though retirees may still face property, sales, or other state and local taxes.
After a lifetime of contributing to Social Security, building up a retirement plan, or earning a pension, you may be bracing for a big tax hit in retirement. But state taxes vary widely, and many retirees get a break: 42 states don’t tax Social Security income, 37 don’t tax most military retirement pay, and 16 exempt pension income from state taxes.
Nine states go even further by not imposing a broad individual income tax at all. That can make a meaningful difference in how much retirement income you get to keep, though property, sales, and other taxes still matter when deciding where to live.
6 States Offer Retirement-Income Tax Breaks
These six states generally impose an individual income tax but exempt Social Security, pension income, retirement account withdrawals, or some combination of the three.
Arkansas
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Arkansas offers retirees a break by exempting up to $6,000 per year from public and private employer-sponsored pension plans and traditional IRA distributions received after the age of 59½ or because of death or disability. It also doesn’t tax Social Security income or military retirement pay at all. Plus, Arkansas imposes no estate or inheritance tax, so your heirs won’t face additional tax burdens.
Illinois
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Illinois exempts pension income, 401(k) and IRA withdrawals, Social Security benefits, and military retirement pay from state taxes. However, Illinois does tax other investment earnings. The state also has estate and inheritance taxes.
Iowa
Scenic color in Burlington, IowaCredit: Travel Iowa Tourism
Iowa changed its tax laws in January 2023 to become more retiree-friendly. As a result, the state no longer taxes pension, annuity, or IRA income for residents over age 55.
On January 1, 2025, the state more broadly transitioned to a flat tax system with a rate of 3.8%. It also eliminated its inheritance tax.
Mississippi
Gulf Coast views in Gulfport, MississippiCredit: Joe Raedle / Staff / Getty Images
Mississippi spares retirement plan distributions, pension income, annuities, Social Security income, and military retirement pay from state taxes. Early distributions from retirement plans generally don’t qualify for exempt status. This state doesn’t have an estate or inheritance tax, either.
Pennsylvania
Relaxing on the shores of Pocono Lake, PennsylvaniaCredit: Roy Morsch/Getty Images
Retirees in Pennsylvania benefit from a lack of state taxes on Social Security, pension income, and retirement plan distributions. However, Pennsylvania has a flat income tax rate.
Important
Pennsylvania offers a property tax/rent rebate program for older adults.
South Carolina
A coastal sunset in South CarolinaCredit: Rachid Dahnoun/Aurora/Getty Images
South Carolina doesn’t tax Social Security income. In addition, all military retirement pay is exempt from state income taxes.
9 More States Have No State Income Tax At All
Another nine states don’t impose any broad individual income tax, so retirement income is generally not subject to state income tax there.
Washington (taxes only capital gains of high earners)
These states can give retirees a significant tax break by not taxing most or all retirement income. But property, sales, and other state and local taxes can still affect the overall cost of living.
At What Age Do You Stop Paying Taxes on Your Pension?
In the U.S., there is no age you stop paying taxes on your pension as taxes are not determined by age. Most pensions will be subject to federal income tax and state income tax, depending on the state. Additionally, at age 73, you must start taking required minimum distributions from tax-deferred accounts.
How Can I Reduce Taxes in Retirement?
There are a few strategies you can incorporate to help reduce taxes in retirement. You should start by planning your withdrawals strategically. You should first withdraw from taxable accounts and then tax-deferred ones, like 401(k)s and IRAs. This allows tax-advantaged accounts to grow longer while keeping taxable income lower early on.
Keep in mind that required minimum distributions (RMDs) begin at 73, so converting some traditional IRA money to a Roth IRA beforehand can reduce future tax burdens because Roth IRAs are not subject to RMDs.
Consider delaying Social Security benefits till 70, as that will increase your benefits but also keep taxes lower early on. Donating to charities also reduces taxes and can be an option for you. Lastly, living in a tax-friendly state will reduce your taxes as will certain medical deductions.
How Is Social Security Taxed in Retirement?
Social Security can be taxed in retirement depending on your income. If your combined income, which includes Social Security benefits, nontaxable interest, and adjusted gross income, is above a certain threshold, you will be subject to income tax. For single filers, if your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxed. (For married filing jointly filers, it’s $32,000 to $44,000.) For single filers, if your combined income is above $34,000, up to 85% of your benefits may be taxed. (For married filing jointly filers, it’s if it’s above $44,000.)
The Bottom Line
State taxes on retirement income vary widely, but several states make life easier for retirees by offering significant tax breaks on Social Security, 401(k) withdrawals, IRA distributions, and pensions.
If you live in one of these states—or one of the nine without a broad individual income tax—you may be able to keep more of your retirement income. While tax laws can change, it’s important to consider these factors when deciding where to retire. But there’s more to consider than just taxes when you decide where to retire, so consider speaking to a financial advisor to find the right plan for you.
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