Taxes
Best States for Retirees to Avoid Taxes
By Dana Mercer · February 3, 2026
Where you retire determines how much of your savings you actually keep. Some states take nothing from Social Security, pensions, or 401(k) withdrawals. Others will cost you thousands every year.
Retirement income is taxed differently in every state, and the gap between the best and worst is not small. A retiree pulling $60,000 per year in Social Security and IRA distributions could owe $0 in state income tax in Florida or more than $3,500 in a state like Minnesota.
The No-Income-Tax States Are Still the Gold Standard
Nine states collect no state income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For retirees, this means every dollar from Social Security, pensions, 401(k) withdrawals, and investment income is untouched at the state level.
Florida and Texas get most of the attention because of their size and infrastructure, but Wyoming and South Dakota offer lower property taxes and smaller population pressure. New Hampshire taxes interest and dividend income at 3% through 2024, but that rate drops to 0% starting in 2026, making it fully tax-free for retirees going forward.
See the full breakdown at our States With No Income Tax in 2026 post.
States That Exempt Social Security and Retirement Income
You do not have to move to a zero-income-tax state to protect your retirement income. A growing number of states with income taxes have carved out full or near-full exemptions for retirees.
Illinois has a flat 4.95% income tax rate, but it exempts all Social Security, pension, and retirement account distributions. A retiree living entirely on retirement income pays $0 in Illinois state income tax despite the headline rate.
Mississippi exempts all Social Security, pensions, annuities, and 401(k) and IRA distributions. Its top income tax rate is 4.7% as of 2026, but most retirees will never touch it.
Iowa made a significant change effective January 1, 2026: all retirement income, including Social Security, pensions, and IRA or 401(k) distributions, is fully exempt for residents 55 and older. Iowa also eliminated its inheritance tax for 2026 and beyond.
Pennsylvania exempts all retirement income including Social Security, pensions, and distributions from qualified retirement accounts. Its flat income tax rate is 3.07%, but again, most retirees owe nothing.
Other strong options include Georgia, which exempts up to $65,000 per person in retirement income for residents 65 and older, and Alabama, which exempts Social Security and most defined-benefit pension income entirely.
Where Property Taxes Can Wipe Out Your Savings
Income tax is only one part of the picture. Property taxes matter enormously for retirees on fixed incomes who own their homes.
New Jersey's effective property tax rate is 2.13%, the highest in the nation. On a $400,000 home, that is $8,520 per year in property taxes alone. Florida's effective rate is 0.86%. Wyoming's is 0.55%. Alabama's is 0.41%.
Many no-income-tax states score well here too. Nevada's effective rate is 0.48%. Tennessee's is 0.56%. But Texas is an exception worth noting: its effective property tax rate is 1.63%, which offsets some of the appeal of having no state income tax.
If property taxes are a concern in your retirement planning, check our States With the Lowest Property Taxes guide for a full state-by-state comparison.
The States Retirees Should Avoid
Not every state wants your retirement dollars. Minnesota taxes Social Security income for single filers earning above $82,190. Vermont taxes Social Security for single filers with incomes above $45,000. Nebraska taxed Social Security until recently and is phasing out that tax, but the full exemption does not take effect until 2026.
California has no special exemptions for retirement income. Every dollar from a 401(k) or IRA is taxed at ordinary income rates, which top out at 13.3%. On a $100,000 IRA withdrawal, a California retiree in the highest bracket owes $13,300 to the state, not counting federal taxes.
Connecticut taxes Social Security for single filers with adjusted gross income above $75,000 and joint filers above $100,000. New Mexico taxes Social Security for higher-income retirees as well.
Use our retirement tax calculator to see exactly what you would owe in each state based on your actual income sources.
Key Takeaways
- Nine states have no income tax at all, making every dollar of retirement income fully exempt from state taxation.
- Illinois, Mississippi, Iowa (as of 2026), and Pennsylvania exempt most or all retirement income despite having income taxes, which makes them competitive options retirees often overlook.
- California's top state income tax rate of 13.3% applies to IRA and 401(k) withdrawals with no retirement-specific exemptions, making it one of the most expensive states for retirees in the country.
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