Out of the 50 states in the United States, 13 of them are kinder to retirees than others. Retired workers can save a substantial amount of money in taxes by living in one of the states that don’t cut into anyone’s retirement income. Many Americans who haven’t even reached retirement age yet already have an informed plan about where they plan to reside when they stop working based on that particular state’s tax laws.
The context of income tax in the United States
Reducing your annual tax liability can be just as beneficial as getting a pay raise. This is why many people move to a different state when they stop working.
A few states don’t tax residents’ income at all, including funds earned from pension plans and Individual Retirement Accounts (IRAs). However, in states where the cost of living is high, what you save in taxes may be spent on day-to-day living.
There’s positive news for most retirees in that the majority of states don’t tax any form of Social Security income. More good news on the Social Security front is that in January 2025, Joe Biden signed a bill into law that raises Social Security benefits for millions of Americans.
These are the states that benefit retirees in terms of taxes
There are three categories of states that either don’t tax residents’ incomes at all, make exceptions for retirees, or don’t tax Social Security benefits. You can find these lists below.
States where retirement income isn’t taxed at all
As of today, there are nine U.S. states that don’t impose any form of income tax on anyone, so retirees’ incomes aren’t taxed either. The taxes that they do collect, like property tax and sales tax, serve as sufficient income for the state. These are the nine income-tax-free states:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
A note about New Hampshire: Up until the end of 2024, the state imposed taxes on dividend and interest income, which are sources of income for many retirees. However, this was lifted at the beginning of 2025, and the only taxes that residents will be liable to pay are federal, city, or council taxes.
States that impose income tax but make allowances for retirees
There are four states where workers are regularly taxed on their income but allowances are made for retirees. There are slight differences in the state’s rules, though.
- Illinois: Earnings from 401(k) plans and other retirement accounts, pension income, and Social Security payments aren’t taxed in Illinois.
- Iowa: Income from 401(k)s, IRAs, and other tax-sheltered plans isn’t liable for income tax in Iowa for anyone aged 55 and older, and Social Security income isn’t taxed either.
- Mississippi: Most of the policies above apply to taxation in Mississippi as well as long as you’ve met the retirement plan’s requirements (which most people will). Residents who take early distribution from most kinds of retirement plans, however, are seen as earning ordinary income and will have to pay taxes.
- Pennsylvania: This state taxes wages, but income from IRAs, 401(k) plans, and Social Security funding isn’t taxable. Pension income isn’t taxable in Pennsylvania either for anyone aged 60 and older.
States that tax Social Security benefits
The majority of states in the United States don’t charge income tax on Social Security funding, so the list of those that do is shorter. These are the eight states where your Social Security income is liable for tax to be paid:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
A note about West Virginia: This state has been incrementally lowering taxes on Social Security benefits for a number of years, and this is the last year that residents will be liable for tax on Social Security income. By 2026, all of these taxes will have been phased out.
Current and future retirees are advised to plan where they live carefully
Avoiding state taxes can have a significant impact on a retiree’s comfort in their years after working. It’s not just important to consider how the state imposes taxes on retirement income, but also the cost of living and other costs that come with residing in different areas.
For example, in Tampa, Florida, the property tax rates have increased by 60% since 2019. In Tennessee, the average home price has gone up from under $250,000 to $390,000 in the same amount of time.
This is why it’s worthwhile to consider all aspects of your retirement, including location and finances, especially if you’ll be living on a limited budget.
In more news about a different kind of tax, some of your credit card rewards may be taxable and you may not be aware. The United States Internal Revenue Service has different requirements for the rewards issued on your credit card spending depending on how they’re issued.