Which states are the most tax-friendly for retirees?

The most tax-friendly states for retirees are those with no income tax at all: Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Tennessee, Alaska, and New Hampshire (interest/dividends only). These states don't tax 401(k) withdrawals, IRA distributions, pensions, or Social Security benefits. Beyond zero-tax states, Mississippi, Pennsylvania, and Illinois also exempt most retirement income despite having income taxes.

Does my state tax my 401(k) withdrawals?

Most states tax 401(k) withdrawals as ordinary income, the same way the federal government does. Exceptions include states with no income tax (Florida, Texas, etc.), plus states like Illinois, Mississippi, and Pennsylvania that specifically exempt retirement income distributions. Always verify your specific state's current rules before planning large withdrawals.

Do all states tax pension income?

No. Several states exempt all pension income, and many more exempt government pensions (state, federal, military). Illinois exempts all retirement income. Mississippi exempts all qualified retirement income. Pennsylvania exempts pension income for residents over 59½. Several states offer a pension income exclusion up to a dollar threshold.

How do state retirement taxes affect where to retire?

Moving from a high-tax state to a no-tax state can save a retiree $5,000–$15,000 or more per year on a moderate retirement income. Over 20 years of retirement, that's $100,000–$300,000 in additional spending power. However, cost of living, healthcare access, proximity to family, and climate often outweigh tax differences in retirement location decisions.

State Taxes on Retirement Income 2026 — 401(k), Pension, SS & IRA by State

State income taxes on retirement income vary enormously — from zero in nine states to full taxation at rates up to 13.3% in California. The difference between retiring in a tax-friendly state versus a high-tax state can easily amount to $5,000–$15,000 per year for a household with typical retirement income, compounding to hundreds of thousands of dollars over a 20–30 year retirement.

Quick answer: Nine states have no income tax at all (Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Tennessee, Alaska, New Hampshire). Beyond those, Illinois, Mississippi, and Pennsylvania exempt most retirement income despite having state income taxes. Most other states tax 401(k) withdrawals, IRA distributions, and pension income as ordinary income — some with partial exemptions for older residents.

The 9 States With No Income Tax

These states don’t tax any income, retirement or otherwise:

State	Income Tax Rate	401(k) / IRA Tax	Pension Tax	SS Tax
Alaska	None	None	None	None
Florida	None	None	None	None
Nevada	None	None	None	None
New Hampshire	Interest/dividends only	None	None	None
South Dakota	None	None	None	None
Tennessee	None	None	None	None
Texas	None	None	None	None
Washington	None	None	None	None
Wyoming	None	None	None	None

Note: New Hampshire taxes interest and dividend income but not wages or retirement distributions.

States That Tax All Retirement Income (Like Ordinary Income)

These states treat 401(k) withdrawals, IRA distributions, and pension income the same as wages — fully taxable at the state’s income tax rate:

State	Top Income Tax Rate	Notes
California	13.3%	No retirement income exclusion
Minnesota	9.85%	Partial SS exemption for lower incomes
Oregon	9.9%	Small pension exclusion available
New Jersey	10.75%	Pension exclusion for seniors below income thresholds
New York	10.9%	Pension exclusions for some government pensions
Montana	6.75%	Federal SS income calculation used for state
Connecticut	6.99%	Partial SS exemption; other retirement income taxed

California is the worst-case scenario for high-income retirees. A married couple taking $100,000 from their 401(k) in California owes state income tax at their marginal rate — potentially 9.3% or higher — on that withdrawal. In Florida, they owe $0.

States With Significant Retirement Income Exemptions

Despite having income taxes, these states give retirees meaningful relief:

State	401(k) / IRA	Pension	Social Security	Notes
Illinois	Exempt	Exempt	Exempt	All retirement income exempt
Mississippi	Exempt	Exempt	Exempt	All qualified retirement income exempt
Pennsylvania	Exempt (59½+)	Exempt (59½+)	Exempt	Broadly tax-friendly for retirees
Georgia	Partial	Partial	Exempt	$65,000 exclusion per person age 65+
South Carolina	Partial	Partial	Exempt	Up to $15,000 exclusion (65+)
Colorado	Partial	Partial	Partial	$20,000–$24,000 SS exclusion by age
Arizona	Partial	Partial	Exempt	Public pensions exempt; private limited

Worked Example: Same Income, Three States

A married couple receives:

$40,000/year from a traditional 401(k)
$30,000/year in Social Security
$10,000/year from a part-time job
Total: $80,000/year

In Florida (no income tax):

State income tax: $0
Federal income tax: Approximately $4,800 (after standard deduction)
Total tax: ~$4,800

In Illinois (retirement income exempt):

State income tax on $10,000 wages: ~$495 (4.95% flat rate)
Federal: ~$4,800
Total tax: ~$5,295

In California:

State income tax on $80,000 income at ~7% effective rate: ~$5,600
Federal: ~$4,800
Total tax: ~$10,400

California vs. Florida difference: ~$5,600/year. Over 25 years of retirement: $140,000.

As of 2026, 41 states and DC do not tax Social Security benefits. The states that still tax SS income include Connecticut, Kansas, Minnesota, Montana, Rhode Island, Colorado, Utah, Vermont, and West Virginia (partial phase-out). See States That Don’t Tax Social Security for the full breakdown.

Military Retirement Pay: State Tax Treatment

Military retirement pay receives favorable treatment in many states:

Category	States
Fully exempt from state tax	About 22 states, including Arizona, Florida, Illinois, Texas, Wyoming
Partial exemption	Many others offer exclusions up to $10,000–$40,000
Fully taxed	California, Minnesota, Vermont, and a few others

Active-duty and retired military members should check their specific state’s current rules, as these have been changing rapidly — over a dozen states have expanded military retirement exemptions in the last five years.

The Most Overlooked Factor: State Estate Taxes

A few states add estate or inheritance taxes on top of the federal estate tax, affecting what you leave heirs:

States with estate taxes: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, DC
States with inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania

If passing assets to heirs is a priority, state estate and inheritance taxes are worth factoring into your retirement location decision.

How to Factor State Taxes Into Your Retirement Plan

Rule of thumb: For every $100,000 of annual retirement income, moving from a 6% effective state income tax state to a 0% state saves about $6,000/year.

Steps to evaluate a potential retirement location:

Estimate your annual retirement income sources (SS, 401k/IRA withdrawals, pension, part-time work)
Apply the state’s tax rules to each income type
Compare the after-tax income across 3–5 candidate states
Weigh against cost of living — a $5,000 state tax savings disappears quickly if housing costs $1,500/month more