Finding States Where Your 401(k), IRA, and Pension Income Won't Get Taxed

Planning Your Retirement Tax Strategy: What States Don’t Tax 401(k) and Other Retirement Accounts?

When retirement arrives, the location you choose matters just as much as how much you’ve saved. One of the most overlooked factors in retirement planning is understanding which states don’t tax 401(k) distributions, pensions, Social Security, and other retirement income. The reality is that state tax laws create a significant advantage for those willing to relocate—some people could save thousands annually simply by choosing the right state.

Nine States Offer Complete Tax Freedom on All Retirement Income

The easiest path to tax-free retirement income is moving to one of the nine states with no income tax whatsoever. These states don’t tax anything: wages, investment gains, and crucially, distributions from retirement accounts.

The no-income-tax states are:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

If you’re in any of these nine, your 401(k) withdrawals, IRA distributions, pension payments, and Social Security benefits are all completely exempt from state taxation. This applies regardless of your age or the type of retirement account you’re drawing from.

Seven Additional States Provide Targeted Retirement Income Exemptions

If moving to a no-income-tax state isn’t feasible, consider these seven states that selectively exempt various forms of retirement income:

Illinois takes the most generous approach—all retirement income is completely exempt, including Social Security, 401(k) distributions, IRA withdrawals, and pensions.

Pennsylvania matches Illinois’ blanket exemption: every type of retirement income is tax-free.

Mississippi also exempts all retirement income from state taxation. However, early withdrawals taken before age 59½ are treated as regular taxable income and don’t qualify for the exemption.

Iowa grants exemptions for retirement account distributions and pensions once you reach age 55. Social Security benefits are exempt regardless of age.

Arkansas allows an annual exemption up to $6,000 from IRA distributions and pension plans if you’re at least 59½ years old.

South Carolina uses an age-based deduction system: if you’re under 65, you can deduct up to $3,000 of retirement income from taxation; if you’re 65 or older, that threshold jumps to $10,000. Social Security is completely exempt.

New Hampshire exempts Social Security and pension income entirely. Previously, interest and dividends from retirement accounts like traditional IRAs were subject to taxation, but those taxes have been phased out recently.

The Social Security Tax Situation: What Actually Gets Taxed?

For most Americans, there’s good news on the Social Security front. Forty-one states plus Washington, D.C., don’t tax Social Security benefits at all. Only nine states still impose a state-level Social Security tax:

• Colorado
• Connecticut
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont
• West Virginia (phase-out scheduled for 2026)

However, here’s the catch most people don’t realize: even if your state doesn’t tax Social Security, the federal government still does—under certain circumstances. Your federal tax liability depends on your “combined income,” calculated as your adjusted gross income (AGI) plus half of your annual Social Security benefit plus any nontaxable interest income.

How Federal Taxes Apply to Your Social Security

The IRS applies a tiered system based on your combined income:

For single filers:

• Below $25,000: 0% of benefits are taxable
• $25,000 to $34,000: Up to 50% of benefits are taxable
• Above $34,000: Up to 85% of benefits are taxable

For married couples filing jointly:

• Below $32,000: 0% of benefits are taxable
• $32,000 to $44,000: Up to 50% of benefits are taxable
• Above $44,000: Up to 85% of benefits are taxable

The taxable portion gets added to your regular income and taxed at your marginal rate. For instance, a single person with a combined income of $30,000 could have up to $15,000 of their Social Security benefits added to other income and taxed accordingly.

Making the Most of Retirement Income Tax Planning

Understanding what states don’t tax 401(k) withdrawals and other retirement accounts is only part of the equation. You must also factor in property taxes, sales taxes, and cost of living when making relocation decisions. Still, for high-net-worth retirees drawing substantial amounts from retirement accounts, choosing a tax-friendly state could result in tens of thousands of dollars in annual savings over the course of a multi-decade retirement.

The strategies that maximize your retirement income aren’t always obvious, which is why careful planning around state and federal tax rules can make a meaningful difference in your financial security during retirement.