11 States Where Your 401(k) Withdrawals Could Go the Furthest

When you picture retirement, you probably picture your money lasting. Where you live could change that math more than you might expect. State taxes, housing costs, and everyday prices vary a lot across the country.

It's tempting to assume the states with no income tax always win. But a state can skip income tax and still hit you with steep property taxes or high prices at the store.

So we looked at four things. First, how a state treats 401(k) and traditional IRA withdrawals. Second, the overall cost of living, using the cost-of-living index from the Missouri Economic Research and Information Center (MERIC). Third, the effective property tax rate, which is property taxes paid as a share of what homes are worth, from the Tax Foundation. Fourth, the combined state and local sales tax rate, also from the Tax Foundation. 

To rank them, we grouped states by how they treat withdrawals. States that exempt qualifying withdrawals with no dollar cap come first, followed by states with a capped or partial break, then states that tax them. Within each group, states are listed from the lowest cost of living to the highest. Property and sales taxes are included for each state so you can weigh the trade-offs.

States that pair tax breaks on withdrawals with lower living costs can be especially appealing, while states with no income tax may still come with higher property taxes or everyday expenses.

Here are 11 states where a 401(k) or traditional IRA may stretch the furthest. Putting a lot of thought into where you settle down can help you save money in retirement.

Iowa

Iowa doesn't tax retirement income, including 401(k) and traditional IRA withdrawals, for people who are 55 or older by Dec. 31 of the tax year, according to the Iowa Department of Revenue. Disabled taxpayers and some surviving spouses qualify, too. If you're younger than 55, withdrawals could be taxed. Other income is taxed at a flat 3.8% for 2026.

Living costs run well below average. Iowa's MERIC index is 86.1, the third lowest in the country, so everyday goods and services cost less than they do in most states. The effective property tax rate of 1.33% is on the high side, the ninth-highest nationally. The combined sales tax rate of 6.94% is below average, which takes some of the sting out.

Mississippi

Mississippi doesn't tax retirement income, including 401(k) and IRA withdrawals, as long as you've met your plan's retirement requirements, according to the Mississippi Department of Revenue. Early distributions don't count as retirement income and could be taxed. 

People 65 and older also get an extra personal exemption. The rate on taxable income above $10,000 dropped to 4% for 2026. By 2030, it will be down to 3% and on a path to phasing the income tax out.

Costs here are among the lowest anywhere. The MERIC index is 87.4. The effective property tax rate of 0.58% is well below the middle of the pack, and the combined sales tax rate of 7.06% is close to the national middle.

One thing to watch: House leaders are exploring the idea of eliminating the homestead property tax and raising the sales tax to make up the money, Mississippi Today reported in October 2026. It's still an idea under discussion ahead of the legislative session that begins in January. If it moves forward, it could change how cheap the state feels day to day.

Tennessee

Tennessee has no state income tax, so 401(k) and traditional IRA withdrawals aren't taxed by the state at all. There's no state estate or inheritance tax either, which matters if you're thinking about what you leave behind.

The MERIC index is 89.7, a bit below average and low for a no-income-tax state. The effective property tax rate of 0.52% is one of the lowest in the country. The catch is at the register. Tennessee's combined sales tax rate of 9.61% is the second-highest nationally, so heavy spenders could feel it.

Wyoming

Wyoming has no state income tax, so 401(k) and traditional IRA withdrawals go untaxed by the state. The effective property tax rate of 0.53% is low, and the combined sales tax rate of 5.39% is well below the national middle. Add it up, and the tax load is light.

Wyoming's MERIC index is 94.4, a bit below the national average, so groceries and services aren't bargain-basement.

Pennsylvania

Pennsylvania doesn't tax Social Security benefits. Withdrawals from qualifying employer retirement plans are also exempt once you've retired after reaching the plan's retirement age or putting in its required years of service, according to the Pennsylvania Department of Revenue. IRAs follow separate rules, and early withdrawals could be taxed. Other taxable income gets a flat 3.07% rate.

Pennsylvania's MERIC index is 95.3, a bit below the national average, so the tax break is doing the heavy lifting. The effective property tax rate of 1.26% is the 12th-highest in the country, and bills swing a lot from county to county. The combined sales tax rate of 6.34% is below the national middle.

Oklahoma

Nowhere is cheaper than Oklahoma. Oklahoma's MERIC index is 83.0, the lowest in the country, so a dollar could go further here than in any other state. Oklahoma does tax income, but each person can deduct up to $10,000 a year of retirement income from IRAs and employer retirement plans, under the state's tax rules.

The effective property tax rate of 0.79% lands right around the national middle. The combined sales tax rate of 9.06% is the sixth-highest, so you'll pay more at checkout. Even so, the rock-bottom cost of living helps make up for it.

Alabama

Alabama taxes 401(k) and traditional IRA withdrawals, though traditional defined benefit pensions are exempt, and people 65 and older can leave out up to $6,000 of taxable retirement income under a 2022 state law.

The MERIC index is 86.0, the second lowest of any state measured, so day-to-day expenses run well under the national average. The effective property tax rate of 0.37% is one of the lowest in the country, which is a big deal if you own your home outright. Sales tax is the trade-off: the combined rate of 9.46% is the fifth-highest in the country.

Missouri

Missouri's draw is mostly price. The state doesn't tax Social Security for people 62 and older, and lower-income retirees can exempt up to $6,000 of private pension income, according to the Missouri Department of Revenue. That break shrinks once income tops $25,000 for single filers or $32,000 for married couples filing together.

The cost of living is the bigger draw. Missouri's MERIC index is 88.2, seventh-lowest in the nation. The effective property tax rate of 0.89% is a little above the middle of the pack, and the combined sales tax rate of 8.44% is on the higher side, 12th-highest nationally. Low everyday prices are what keep Missouri on the list.

Michigan

A 2023 state law brought back a deduction for retirement income, and 2026 is the first year it's fully phased in, with no birth-year limits, according to the Michigan Department of Treasury. That lets retirees subtract qualifying retirement income, including IRA distributions and most 401(k)-type plan payments, up to a limit that's adjusted for inflation each year.

On costs, Michigan is mixed. The effective property tax rate of 1.19% is the 14th-highest in the country. The combined sales tax rate of 6.00% is on the low end. Michigan's MERIC index is 92.1, below the national average, so the tax deduction does most of the work.

West Virginia

West Virginia finished phasing out its tax on Social Security benefits, so benefits are fully deductible starting with the 2026 tax year, according to the West Virginia Tax Division. The state does tax 401(k) and IRA withdrawals, though, so you could owe tax on them.

The cost side is the real draw. West Virginia's MERIC index is 87.0, fourth-lowest in the country. The effective property tax rate of 0.51% is one of the lowest anywhere, and the combined sales tax rate of 6.60% sits below the national middle.

Indiana

Indiana taxes 401(k) and IRA withdrawals at a flat 2.95% for 2026, according to the Indiana Department of Revenue, and counties add their own local income tax.

The MERIC index is 89.7, tied with Tennessee and among the 10 lowest. The effective property tax rate of 0.76% is just below the national middle, and the combined sales tax rate of 7.00% sits close to the middle too. Nothing flashy, just steady affordability.

Bottom line

No single number can tell you where your savings will stretch the furthest. Your spending habits, health needs, and housing choices matter as much as any statewide ranking. A cheap state can still have an expensive city or county. Insurance costs, especially home and health coverage, swing widely inside one state too.

Taxes are also only part of the picture. Required minimum distributions, the withdrawals the IRS makes you take from most retirement accounts once you hit a certain age, could push your taxable income up in a new state's system. Running your own numbers, or having a tax pro do it, tends to beat moving on a ranking alone. A clear plan for drawing down savings could also help you with your retirement goals. 

You May Also Like

23 Ways To Get Money Without Getting A Second Job

By FinanceBuzz Editors

How To Save Money on Car Insurance: 12 Ways to Lower Rates

By Elyssa Kirkham

10 Things Seniors Born Between 1941-1969 Could Take Advantage Of

By FinanceBuzz Editors

19 Dumbest Things Smart People Waste Money On

By Team FBZ

7 Moves If You Want to Stop Living Paycheck to Paycheck

By FinanceBuzz Editors

7 Clever Ways to Crush Your Debt

By FinanceBuzz Editors

Save Money and Get Huge Discounts on Everyday Purchases

AARP Benefits

• Huge discounts on travel, groceries, prescriptions and more
• Access to financial planning resources and health tools
• Join AARP and get 25% off with automatic renewal

Become a member now!

---

Subscribe Today

Unlock the Best Banking Deals and Bonuses

From high-yield savings accounts to cashback checking and sign-up bonuses, we bring you the best banking offers to grow your money smarter.

or

SEE TOP BANKING OFFERS →

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms