Just because you’ve retired doesn’t mean your income is tax-free.
When their working days eventually come to an end, many retirees will think about the best place to spend their golden years. Not all states treat retirement income — such as pension payouts or distributions from 401(k) plans and IRAs — the same way, which makes state and local taxes a key consideration for anyone expecting to be on a fixed income during this time.
Here’s what you need to know about how different states tax retirement income, including the states where you won’t pay taxes at all.States with no income tax
Retirement distributions from 401(k) plans or IRAs are considered income for tax purposes.
Fortunately, there are several places with no state income tax: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming
New Hampshire previously taxed interest and dividend payments, but that tax has been repealed starting with the 2025 tax year.
Washington does have a capital gains tax, though there are exemptions and deductions that may eliminate or lower the amount that is owed.States with an income tax that don’t tax retirement income
In addition to the nine states above that don’t have an income tax at all, four states do not tax retirement income: Illinois, Iowa, Mississippi and Pennsylvania.
Illinois: Illinois charges a flat state income tax of 4.95%, but all retirement income is exempt from paying the tax. This includes pension payments, as well as distributions from retirement plans such as 401(k)s and IRAs. Social Security payments are also exempt.
