These States Don’t Tax Retirement Income
States vary widely in the way they tax retirement income so location is an important consideration in financially planning for retirement. Some states don’t levy income states on any sort of retirement income, while others tax IRA and 401(k) distributions, pension payouts and even social security payments like ordinary income. Income taxes are just part of the story, however, as some states with low or no income taxes have high property, sales and other taxes. Consider working with a financial advisor when you are planning for retirement to make sure you avoid any unnecessary taxes.

Retirement Income Tax Basics

Most retirement income can be subject to federal income taxes. That includes Social Security benefits, pension payments and distributions from IRA and 401(k) plans. Exceptions include distributions from Roth IRA and Roth 401(k) plans. Federal income taxes on Roth contributions are paid before the contributions are made. These contributions as well as any investment gains can be withdrawn free of federal income taxes after five years if you have reached age 59 1/2.

The situation is more complex when it comes to how states will tax your income. Many states have no income tax at all, so all retirement income, as well as other income, is state tax-free. Most states specifically exclude Social Security benefits from taxation. Some others also exempt retirement account distributions and pensions. Most have a mix of approaches to taxing retirement income.

Now that you have a good baseline knowledge of how retirement taxes work at the state level, let’s dive into the states that won’t tax you at all.

States That Don’t Tax Retirement IncomeEight states have no state income tax. Those eight – Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming – don’t tax wages, salaries, dividends, interest or any sort of income.

No state income tax means these states also don’t tax Social Security retirement benefits, pension payments and distributions from retirement accounts. Even income from securities held in non-retirement brokerage accounts is free from any state income tax in these states. That means retired residents in these states have no worries about paying state income taxes on their income from any source.

Another state, New Hampshire, has no state income tax on wages, salaries, retirement account withdrawals or pension payments. But New Hampshire does currently tax dividends and interest, which are likely to be sources of income for some retirees with assets outside retirement accounts.Eleven states levy no income taxes on retirement income from any source. Others offer resident retirees varying degrees of exemptions from taxation on Social Security, retirement account distributions, pension payments and other types of retirement income. Some of the exemptions are generous enough that many retirees in those states won’t pay any income tax. Details such as the retiree’s income matter and vary by state, so it’s important to check with the state tax office for details before relocating to save on taxes.

Tips for Retirement

A financial advisor can help you balance the tax and other considerations involved in selecting a place to retire. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

The rest of the states take a variety of approaches to taxing retirement income. Some tax all retirement income, including Social Security. Others exempt Social Security but tax sources such as pensions and retirement account income if retirees’ income exceeds a certain cap. But the following states levy no tax on retirement income of any sort.

11 States That Don’t Tax Retirement Income 1. Alaska No state income tax 2. Florida No state income tax 3. Illinois Retirement income exempt, including Social Security, pension, IRA, 401(k) 4. Mississippi Retirement income exempt, including Social Security, pension, IRA, 401(k) 5. Nevada No state income tax 6. Pennsylvania Retirement income exempt, including Social Security, pension, IRA, 401(k) 7. South Dakota No state income tax 8. Tennessee No state income tax 9. Texas No state income tax 10. Washington No state income tax 11. Wyoming No state income tax

States With Small Retirement Tax Requirements

Some states that don’t appear on this list of those that don’t tax retirement income at all are still relatively generous when it comes to letting retirees off the tax hook. For instance, Georgia does not tax Social Security retirement benefits and also provides a deduction of up $65,000 per person on all other types of retirement income.

Also, in Pennsylvania all Social Security benefits and IRA and 401(k) income is exem…(read more)

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As retirees, one of the biggest concerns is the tax implications of their retirement income. Many states levy taxes on retirement income, which can have a significant impact on retirees’ financial wellbeing. However, there are some states in the United States that don’t tax retirement income. In this article, we’ll take a closer look at these states and what they have to offer to retirees.

1. Florida

One of the most popular retirement destinations, Florida, is a tax-friendly state for retirees. One of the primary reasons why Florida is a popular choice among retirees is that the state doesn’t levy any state income tax. This means that retirees can keep more of their retirement income, whether it comes from Social Security, a pension, or an investment account. Additionally, Florida also offers other tax benefits, such as no state estate or inheritance tax.

2. Nevada

Nevada is another state that doesn’t tax retirement income. The Silver State is known for its low tax rates and a business-friendly environment. Retirees in Nevada don’t have to pay any state income tax on their retirement income, which means they can save more money. However, it’s worth noting that Nevada does have a sales tax, which can be as high as 8.25%.

3. Alaska

Located in the northwestern part of the United States, Alaska is known for its rugged landscapes and natural beauty. But, the Last Frontier is also a tax-friendly state for retirees. Alaska doesn’t levy any state income tax, including on retirement income. Plus, retirees in Alaska also benefit from no state sales tax or state estate tax.

4. South Dakota

South Dakota is another tax-friendly state for retirees. The state offers a low cost of living, which can be especially beneficial for those on a fixed income. Retirees in South Dakota don’t have to pay any state income tax on their retirement income. Additionally, the state also has no state estate tax.

5. Wyoming

Home to Yellowstone National Park and Grand Teton National Park, Wyoming is a popular destination for nature lovers and outdoor enthusiasts. However, Wyoming is also a tax-friendly state for retirees. The state doesn’t have any state income tax, which means retirees can keep more of their retirement income. Additionally, Wyoming also doesn’t have a state estate tax.

In conclusion, retirees looking for a tax-friendly state should consider states that don’t tax retirement income. These states offer a range of benefits, including low cost of living, no state sales tax, and no state estate tax. By choosing a tax-friendly state, retirees can enjoy their retirement years without worrying about the financial implications of taxes on their retirement income.