Forty-two states don’t tax Social Security income.
Thirty-seven states don’t tax most military retirement pay.
Sixteen states exempt pension income from state taxes.
Nine states have no income tax. This count includes Washington, which taxes high earners’ capital gains only.
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. Now you’re ready to punch your last time card, and your state has its hand out for some tax dollars as well.
Or does it? While federal taxes are unavoidable, some states are kinder than others when it comes to taxing retirement income. Others don’t tax it at all.
A man fishing the Arkansas River
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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 tax military retirement pay at all. Plus, Arkansas imposes no estate or inheritance tax, so your heirs won’t face additional tax burdens.
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Illinois is another state that is friendly to retirees. The state 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.
A colorful fall scene in Burlington, Iowa Travel Iowa Tourism
Iowa recently updated its tax laws to be more retiree-friendly. As of January 2023, the state no longer taxes pension, annuity, or IRA income for residents over age 55.
On January 1, 2025, the state transitioned to a flat tax system, with a rate of 3.8%. It also eliminated its inheritance tax.
Gulfport, Mississippi
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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.
Arethusa Falls is the most dramatic waterfall in New Hampshire, so make it a “must” on your tour. Media photo courtesy of the New Hampshire Division of Travel and Tourism
New Hampshire doesn’t tax Social Security or pension income. This state doesn’t have an income tax on earned wages and most distributions count as income so they’re exempt.
Notably, New Hampshire repealed its tax on interest and dividends as of Jan. 1, 2025, making it even more attractive for retirees. Estate and inheritance taxes are also absent in New Hampshire.
Pocono Lake, Pennsylvania
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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.
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Pennsylvania offers a property tax/rent rebate program for older adults.
South Carolina’s UFO Welcome Center is a welcome reprieve for UFO enthusiasts. 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.
In these states, you don’t need to worry about state income taxes on any retirement income:
These states offer automatic tax relief for retirees by not taxing any retirement income. It’s also worth noting that some of these states may still levy other taxes, such as property taxes or sales taxes, to make up for the lack of income taxes.
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.)
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 better yet, one of the nine states without any income tax—you’ll keep more of your hard-earned 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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