When you're retired and on a fixed income, one of your biggest controllable expenses will be taxes. It's completely based on where you choose to live and where you choose matters.
While you don't ever want taxes to make the decision, it can often be a good tie-breaker. If you have family nearby in Maryland, for example, it is better to live in nearby Pennsylvania than Virginia for tax purposes. PA doesn't tax retirement income (pensions, 401(k) / IRA withdrawals, and Social Security) plus there is reasonable property tax rates outside of Philadelphia and Pittsburgh. Virginia taxes most retirement income. PA also has a lower cost of living.
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If you're picking where to live, here's a breakdown of which states tax what when it comes to sources of retiree income.
9 States That Don’t Collect Income Tax (and Don’t Tax Retirement Income)
Let's get the easy states out of the way, there are some states that don't collect an income tax. As a result, they don't collect a tax on retirement income either.
Nine states fit this category:
- Alaska,
- Florida,
- New Hampshire,
- Nevada,
- South Dakota,
- Tennessee,
- Texas,
- Washington,
- and Wyoming
Whether you rely solely on drawing down your retirement accounts or will consider a little side work to make some money, these states won't tax any of it. New Hampshire is the newest state on this list because they used to tax interest and dividends but phased that out fully in 2025.
That said, states without income tax often tax other areas as well, including sales taxes, property taxes, and various fees. Those tend to be vary on the county and local level so do your research to find out how that will impact you. While the state may not taking the tax from income, your other expenses may go up.
13 States That Don’t Tax Defined Contribution Plan Distributions
Some states are generous in that they don't tax income that originates from 401(k), 403(b), 457, or traditional IRA sources – often called defined contribution plans. There are four states that don't automatically tax retirement account withdrawals:
- Illinois,
- Iowa,
- Mississippi,
- and Pennsylvania
Add those four to the nine states that don't tax income at all and you arrive at lucky number thirteen.
You will want to double check eligibility rules and how each state defines retirement income too. There may be age and residency requirements. In Iowa, you must be 55 years of age or older by the end of the tax year to exclude most retirement income from Iowa state income tax.
15 States That Don’t Tax Pension Income
Pension income, also known as a defined benefit plan, may have fallen out of favor for many employers today but still popular enough that some states exclude it from their taxation. If you get a pension, you'll want to find a state that doesn't tax it as it's going to cost you each month.
In addition to the nine states with no income tax, there are six that exempt pension income for a total of fifteen:
- Alabama,
- Hawaii,
- Illinois,
- Iowa,
- Mississippi,
- and Pennsylvania
Again, double check eligibility rules and how each state defines pension income. There may be age and residency requirements too, just as with defined contribution plans. For example, in Pennsylvania, pension income is tax exempt for residents age 60 and older. You also need to have established a domicile in Pennsylvania or spend 183 days or more in PA (more than half the year).
35 States That Don’t Tax Military Pension Income
If you are a military retiree, you often get special tax treatment on your retirement pay and many states offer full exemptions as a way to attract and support veterans. This can be a huge financial benefit as there are more than 35 states that exempt a military pension income from state taxes.
It is very important you review the state rules because they vary, which is what you'd expect from 35 states offering some benefit. Some exclude taxes entirely, others exempt up to a certain dollar amount or based on retiree age. There are others that have rules tied to disability ratings, medical retirement, and other rules.
Here are the states that do collect a state income tax but do not collect it on military pension income:
- Alabama,
- Arizona,
- Arkansas,
- Connecticut,
- Hawaii,
- Illinois,
- Indiana,
- Iowa,
- Kansas,
- Louisiana,
- Maine,
- Massachusetts,
- Michigan,
- Minnesota,
- Mississippi,
- Missouri,
- Nebraska,
- New Jersey,
- New York,
- North Carolina,
- North Dakota,
- Ohio,
- Oklahoma,
- Pennsylvania,
- South Carolina,
- and Wisconsin
41 States That Don’t Tax Social Security Income (Plus DC)
Finally, we have Social Security income, which often represents a significant portion of every retiree's monthly income. These benefits are taxed federally depending on your total income but many states, forty one states pus the District of Columbia, do not tax them. In this category, we will do the reverse and list the states that do tax Social Security!
In all of the states listed, Social Security income is only taxed if you exceed an income threshold. In some cases, you can still live in the state and avoid taxation. You will also want to review the taxation status of other retirement income sources, like pensions, IRA withdrawals, and the like; as they may be taxed.
Here are the states that may tax Social Security Income:
- Colorado
- Connecticut
- Minnesota
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
For example, in Colorado, residents age 55-64 with an adjusted gross income below $75,000 (single filers) or $95,000 (married filing joint) will not be taxed on Social Security benefits. If you are 65+, you will not be taxed.
Is It Better to Live in a State That Doesn’t Tax Retirement Benefits?
Whether it makes sense to you will depend on a lot of different factors, of which taxes is just one of them. You will have to review the cost of living in each prospective state as well as any additional taxes and fees that may be collected by the state.
All other things being equal, you'd rather pay less in taxes and with your retirement income, many states offer favorable taxation for those sources.
The best approach is to review the total cost of living that includes taxation as a factor. Once you include housing costs, healthcare, climate, proximity to family and friends, lifestyle preferences, and travel opportunities – you can make an informed decision.
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