--- title: What States Do Not Tax Retirement Income? description: Here’s what you should know about tax-friendly states and which ones won’t tax your retirement income. image: https://www.realized1031.com/hubfs/Images/photo/abstract/couple-consulting-retirement-IS-1186603957.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # What States Do Not Tax Retirement Income? Posted Mar 26, 2021 ![couple-consulting-retirement-IS-1186603957](https://www.realized1031.com/hs-fs/hubfs/Images/photo/abstract/couple-consulting-retirement-IS-1186603957.jpg?width=750&height=392&name=couple-consulting-retirement-IS-1186603957.jpg) Retirement is something that most people can look forward to. You can choose to permanently leave the workforce behind, kick up your feet, and collect the retirement income that you’ve worked so hard to earn. One important thing to remember — you’ll likely continue to pay taxes. When you’re living on a fixed income, what you pay in taxes can make a big difference. There are different tax rules for each source of income and these rules also depend on where you choose to live. Here’s what you should know about tax-friendly states and which ones won’t tax your retirement income. ### States That Do Not Tax Retirement Income As of 2021, there are nine states with no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, for the 2020 tax year, New Hampshire and Tennessee did tax investment income (not earned income) in the form of interest and dividends at 5% and 1%. If you lived in one of those states during the 2020 tax year and received income from your investments, you will need to file a state tax return. Keep in mind that states that don’t tax income collect their revenue in other ways. This is usually in the form of [property taxes](https://www.realized1031.com/blog/how-do-state-property-taxes-work) and [sales taxes](https://www.realized1031.com/glossary/sales-tax). Texas and New Hampshire have some of the highest property tax rates in the country. Tennessee has the highest state and local sales tax rate at 9.55%, according to the [Tax Foundation](https://taxfoundation.org/2021-sales-taxes/). ### States with Income Tax Breaks Other states still offer retirees tax breaks on retirement income. Illinois, Mississippi, and Pennsylvania don’t tax distributions from [401(k) plans](https://www.realized1031.com/blog/what-is-a-401k-retirement-plan), [IRAs](https://www.realized1031.com/glossary/traditional-ira), or [pensions](https://www.realized1031.com/glossary/pension-plan) and Alabama and Hawaii don't tax pension income but do tax distributions from 401(k) plans and IRAs. These 24 states exempt or provide a [tax credit](https://www.realized1031.com/glossary/tax-credit) for a portion of pension income: Alabama, Arkansas, Colorado, Delaware, Georgia, Hawaii, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Missouri, Montana, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, South Carolina, Utah, Virginia, and Wisconsin.  These states don’t tax military retirement income: Alabama, Arkansas, Connecticut, Hawaii, Illinois, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Dakota, Ohio, Pennsylvania, West Virginia, and Wisconsin. ### Least Tax-Favorable States fo Retirees Some states aren’t as tax-favorable to retirees as others. Tax rates are high with fully taxed pension income, as well as 401(k) and IRA distributions. Here are the least tax-favorable states and their individual top tax rates for 2021 according to the [Tax Foundation](https://taxfoundation.org/publications/state-individual-income-tax-rates-and-brackets/): - **California: **13.3% for income over $1 million - **Minnesota: **9.85% for income over $164,400 - **Vermont: **8.75% for income over $200,200 - **Idaho: **6.925% for income over $200,200 - **Connecticut: **6.99% for income over $500,000 - **Nebraska: **6.84% for income over $31,750 - **West Virginia: **6.5% on income over $60,000 - **Rhode Island: **5.99% on income over $148,350 - **Kansas: **5.7% on income over $30,000 - **North Carolina: **5.25% on all income - **Massachusetts: **5% on all income - **Arizona: **4.5% on income over $159,000 - **Indiana: **3.23% on all income - **North Dakota: **2.9% on income over $433,200 While taxes aren’t everything, they could be a determining factor in where you choose to retire. Keep in mind that you must report income earned in other states when filing your state tax return. If you plan to retire to a state that does not tax retirement income, it’s important to become familiar with local tax laws.  This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. 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For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "Retirement is something that most people can look forward to. You can choose to permanently leave the workforce behind, kick up your feet, and collect the retirement income that you’ve worked so hard to earn. One important thing to remember — you’ll likely continue to pay taxes. When you’re living on a fixed income, what you pay in taxes can make a big difference. There are different tax rules for each source of income and these rules also depend on where you choose to live. Here’s what you should know about tax-friendly states and which ones won’t tax your retirement income. States That Do Not Tax Retirement Income As of 2021, there are nine states with no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, for the 2020 tax year, New Hampshire and Tennessee did tax investment income (not earned income) in the form of interest and dividends at 5% and 1%. If you lived in one of those states during the 2020 tax year and received income from your investments, you will need to file a state tax return. Keep in mind that states that don’t tax income collect their revenue in other ways. This is usually in the form of property taxes and sales taxes. Texas and New Hampshire have some of the highest property tax rates in the country. Tennessee has the highest state and local sales tax rate at 9.55%, according to the Tax Foundation. States with Income Tax Breaks Other states still offer retirees tax breaks on retirement income. Illinois, Mississippi, and Pennsylvania don’t tax distributions from 401(k) plans, IRAs, or pensions and Alabama and Hawaii don't tax pension income but do tax distributions from 401(k) plans and IRAs. These 24 states exempt or provide a tax credit for a portion of pension income: Alabama, Arkansas, Colorado, Delaware, Georgia, Hawaii, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Missouri, Montana, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, South Carolina, Utah, Virginia, and Wisconsin. These states don’t tax military retirement income: Alabama, Arkansas, Connecticut, Hawaii, Illinois, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Dakota, Ohio, Pennsylvania, West Virginia, and Wisconsin. Least Tax-Favorable States fo Retirees Some states aren’t as tax-favorable to retirees as others. Tax rates are high with fully taxed pension income, as well as 401(k) and IRA distributions. Here are the least tax-favorable states and their individual top tax rates for 2021 according to the Tax Foundation: California: 13.3% for income over $1 million Minnesota: 9.85% for income over $164,400 Vermont: 8.75% for income over $200,200 Idaho: 6.925% for income over $200,200 Connecticut: 6.99% for income over $500,000 Nebraska: 6.84% for income over $31,750 West Virginia: 6.5% on income over $60,000 Rhode Island: 5.99% on income over $148,350 Kansas: 5.7% on income over $30,000 North Carolina: 5.25% on all income Massachusetts: 5% on all income Arizona: 4.5% on income over $159,000 Indiana: 3.23% on all income North Dakota: 2.9% on income over $433,200 While taxes aren’t everything, they could be a determining factor in where you choose to retire. Keep in mind that you must report income earned in other states when filing your state tax return. If you plan to retire to a state that does not tax retirement income, it’s important to become familiar with local tax laws. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.", "articleSection" : [ "Retirement Income" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2021-10-29T22:27:22+0000", "datePublished" : "2021-10-29T22:27:22+0000", "description" : "Here’s what you should know about tax-friendly states and which ones won’t tax your retirement income.", "headline" : "What States Do Not Tax Retirement Income?", "image" : { "@type" : "ImageObject", "height" : 501, "url" : "https://f.hubspotusercontent10.net/hubfs/733513/Images/photo/abstract/couple-consulting-retirement-IS-1186603957.jpg", "width" : 750 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/what-states-do-not-tax-retirement-income", "name" : "What States Do Not Tax Retirement Income?", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://f.hubspotusercontent10.net/hubfs/733513/Images/photo/abstract/couple-consulting-retirement-IS-1186603957.jpg" } ```