If you’re worried about running out of money in retirement, consider how state taxes affect your income. Some states offer generous exemptions. Others have deceptively low overall costs of living that are sometimes offset by relatively higher taxes on 401(k) withdrawals, IRA distributions, and other retirement income. Choosing a tax-friendly state can significantly improve your monthly budget.
Read on to discover which states don’t tax retirement income and why. You’ll learn how different types of income — from military retirement to pensions and IRAs — are treated across the U.S. With Gainbridge, you can build a reliable income stream that best fits your unique retirement goals.
Is retirement income taxable?
Retirees typically receive income from a mix of sources, including Social Security, pensions, and military benefits. While the federal government has clear rules, states vary widely in how they treat each. For example, if you’re wondering, “Do seniors pay taxes on IRA withdrawals?” the answer is generally yes at the federal level, unless it’s a Roth IRA. But state rules differ.
Here’s how different types of retirement income are taxed at the federal level and what to expect from state rules:
- Social Security: The federal government taxes up to 85% of your Social Security benefits, depending on your total income and filing status. Most states don’t tax Social Security, but some do, including Colorado and Connecticut.
- Pensions and retirement accounts: The Internal Revenue Service (IRS) typically taxes distributions from pensions, 401(k) plans, and traditional IRAs as ordinary income because you contributed to these accounts with pre-tax dollars. Most states also treat these withdrawals as taxable income. Roth 401(k)s and Roth IRAs are funded with after-tax money. So you can usually take tax-free distributions provided you follow IRS rules.
- Annuity payments: The rules here are similar to pensions and retirement accounts. If funded with pre-tax dollars, your entire payout is generally taxable. If you originally invested after-tax money, you typically only pay tax on the earnings portion of your annuity payments. State rules vary, but many have guidelines similar to federal rules.
- Military retirement: The federal government typically taxes the full amount of these benefits. But some states don’t tax military retirement. For example, Arizona and Massachusetts offer full or partial exemptions, helping retirees keep more of their income.
13 states that don't tax retirement income
Only a few states fully exempt all forms of retirement income (at the state level). They fall into two categories: those with no state income tax at all and those that provide full retirement exemptions.
Nine no-income states
These tax-friendly states don’t levy state income tax on wages, salaries, or retirement distributions:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
The following states charge state income tax but provide exemptions on most retirement income:
- Illinois: Despite its 4.95% flat state tax on wages, Illinois exempts all forms of retirement income from taxation.
- Iowa: As of 2023, Iowa residents over 55 do not have to pay state tax on retirement income. Iowa charges a flat 3.8% tax on taxable income (such as wages and salaries) after the state passed a new law in 2024.
- Mississippi: As of 2025, Mississippi does not tax income up to $10,000, but charges 4.4% on anything above $10,000. Legislation requires the state to gradually decrease this tax to 3.0% by 2030.
- Pennsylvania: While Pennsylvania charges a flat 3.07% state tax on personal income, it does not tax retirement income, including IRAs, as long as you follow your plan’s rules.
42 states that don’t tax Social Security
Most states in the country don’t tax Social Security. Here are the 42 that do not:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
What is the best state to retire in?
The most tax-friendly states might not be the right place for you to live. The decision on where to retire comes down to more than your tax bill.
Overall cost of living
Some states with no or low income tax make up for it in other ways that can be costly to retirees. For example, Tennessee has no income tax but charges one of the highest sales taxes in the nation, often exceeding 9.5%. Delaware charges state income tax, but has no sales tax.
Healthcare quality and access
Some areas have better access to specialized Medicare providers. The number and quality of hospitals can also vary by state. And if you require supplemental health insurance, state variations on premiums should factor into where you live.
Proximity to family and a social network
Isolation can impact mental health. Staying near family and friends may outweigh any tax advantages. Make sure to consider your support system when choosing where to live.
Climate and public safety
Weather and safety are important considerations and can vary widely even within states. For example, Southern California and Northern California have different climates. And crime statistics vary considerably across cities, towns, and neighborhoods all across the U.S.
Property-tax relief for seniors
Many retirees own their homes outright or have relatively low mortgage payments, but struggle to keep up with rising property taxes. For example, New Hampshire has one of the highest property tax rates in the United States at around 1.77%, while Wyoming’s average rate is more affordable at close to 0.55%.
Some states offer seniors exemptions or caps on property taxes. These policies may reduce your tax burden by lowering the taxable value of your property or limiting annual increases. But the impact can vary depending on the current property tax rate.
A comprehensive approach to tax and retirement planning with Gainbridge
Forty-two states don’t tax Social Security benefits, and 13 others offer broad exemptions on retirement income. But taxes are only part of the equation. Healthcare access, climate, and cost of living can all impact your retirement quality. Retirees must balance financial strategy with lifestyle needs when choosing where to live.
Gainbridge helps retirees secure their future with digital-first annuities designed to guarantee growth and income in retirement. Their products can provide transparency and predictable payouts. With no middleman to deal with, you can avoid commissions and hidden fees. Explore Gainbridge today and see how annuities can secure your financial future and help empower you to live where you want in retirement.
This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes. Guarantees are backed by the financial strength and claims-paying ability of the issuer.
