13 States That Don’t Tax Your Retirement Income

Retirement is a time to relax and enjoy the fruits of your hard work, not to stress about taxes chipping away at your savings.

The good news is that retirees can choose to live in states that help them keep more of their money because all types of retirement income, like 401(k) distributions, IRA withdrawals, pensions, and Social Security benefits, are completely tax-free.

Here's a closer look at the 13 states where your retirement income goes untaxed, plus tips on managing your financial future.

Florida is an enticing place for retirees because of the warm weather and residential options that cater to retirees.

It's also a great place if you're worried about a high tax bill. The state has no income tax and doesn't tax Social Security, retirement account withdrawals, or your income from a pension.

However, it's important to remember that Florida still has property taxes, and rates vary from location to location. 

Also, due to the high incidence of extreme weather, homeowners insurance may be unaffordable if you can get it. It's important to factor those costs in if you plan to buy a home there.

It may be a good gamble to move to Nevada when you retire for the warm weather and retirement tax benefits.

Nevada doesn't tax Social Security, retirement account withdrawals, or pension income. It's also a state that doesn't tax income, making it affordable for retirees.

The state is also in the top 10 when it comes to the lowest property tax rates in the country. If you buy a home there, expect to pay around a 0.55% property tax rate.

South Dakota is very friendly to retirees when it comes to taxes. There's no tax on Social Security, retirement account withdrawals, and pensions. It also doesn't state tax income.

The state also has a low cost of living, including housing. According to Redfin, the median sale price was $303,400 in December compared to $427,179 for the entire United States in that same month.

Another state that doesn't tax income is Wyoming. In addition to that, the state also won't tax your Social Security, private or public pensions, or your retirement account withdrawals.

Wyoming also has affordable property taxes, making the top 10 for lowest property tax rates by state in the U.S. You should factor in an average property tax rate of 0.61% when putting your retirement budget together.

The state of Washington makes it affordable for retirees to live there with zero taxes on your Social Security benefits, retirement withdrawals, or income from a pension. It's also one of nine states with no state income tax.

Be aware that you may have to use the money you save in taxes on housing. The median sale price of a home in Washington was $612,000 in December, and the state has an average property tax rate of around 0.84%.

If you prefer to live somewhere cold with lots of outdoor activities when you retire, there's nowhere that can meet your requirements quite like Alaska.

The state also is tax-friendly to retirees. The state has no taxes on Social Security, retirement account withdrawals, or private and public pensions.

The state is also easy for seniors when it comes to property taxes. If your primary residence is in Alaska, you have a mandatory exemption on property taxes for the first $150,000 of assessed value if you're 65 or older.

Tennessee is another state that doesn't tax your income or your Social Security, retirement account withdrawals, or pension income.

The state ranks in the top 15 states when it comes to affordable property taxes, so you can save some cash living there, depending on where you decide to buy a home.

In addition to no state income tax, Texas welcomes retirees by not taxing Social Security, pensions, or any of your retirement withdrawals.

Be aware that of the nine states with no state income tax, Texas has the highest average property tax rate on the list, at 1.6%. You'll need to factor that in when budgeting your costs if you retire in the Lone Star State.

Illinois is tax-friendly to retirees. You can enjoy the full benefits of your Social Security, retirement account withdrawals, and pensions without paying taxes.

However, there are other costs you may have to account for. Illinois has a flat income-tax rate of 4.95%, which could be an issue if you decide to take up a side hustle or earn other income while living there.

The state also has the second-highest average property tax rate in the U.S., with homeowners paying around 2.08% in property taxes.

Mississippi is particularly tax-friendly for retirees who wish to live there as it doesn't tax Social Security, retirement account withdrawals, or distributions you receive from a pension. As long as the income is from a qualified retirement plan and received after reaching retirement age.

Mississippi does have a 4.7% tax rate for any income you may earn while you live there, so factor that into your budget when deciding if you should retire there.

Similar to Mississippi, as long as your income is from a qualified retirement plan,  Pennsylvania is tax-friendly if you decide to retire there as it doesn't tax your Social Security, withdrawals from a retirement account, or a pension.

However, the state does have some restrictions on what it considers retirement withdrawals. It's important to talk to a financial advisor or tax advisor to ensure you know what you may have to pay taxes on and what you don't.

As of January 1, 2023, Iowa no longer taxes retirement income for residents who are 55 or older. This includes 401(k) withdrawals, IRA distributions, pension income, annuities, and other retirement plan payouts.

Social Security benefits were already tax-exempt in the state, but this new exemption means retirees can now keep even more of their income. To qualify, individuals must meet the age requirement (55+) or be a surviving spouse or disabled beneficiary.

By eliminating taxes on retirement income, Iowa has become a more attractive destination for retirees looking to stretch their savings.

New Hampshire does not tax 401(k) withdrawals, IRA distributions, pension income, or Social Security benefits, making it a favorable state for retirees. However, unlike most other states with no income tax, New Hampshire does tax interest and dividend income.

This means retirees who rely on investments outside of retirement accounts, such as dividends from stocks or interest from savings accounts, may still owe some state taxes. Despite this, the state has no sales tax and relatively low property taxes compared to neighboring states, making it an appealing option for retirees looking to minimize their overall tax burden.

Choosing the right retirement haven isn't just about sunshine and golf courses. Taxes, both income and sales, can significantly impact your lifestyle. 

So, before you retire, crunch the numbers, compare tax brackets, and consider incorporating tax-advantaged strategies. 

Remember, a little planning today can translate to a more financially secure tomorrow in your dream retirement location.