Choosing where to retire is one of the most consequential financial decisions most Americans make. State income tax on retirement income varies dramatically — from zero (in 13 states that fully exempt all retirement income) to full taxation at regular income tax rates in states like California and Minnesota. For a retiree with $80,000 in annual income from Social Security, a pension, and IRA withdrawals, the difference can be several thousand dollars per year — for example, a single filer with $80,000 of taxable pension and IRA income owes about $3,100 in California and $0 in Illinois — every year of retirement.
This guide breaks down every state’s treatment of Social Security benefits, pension income, 401(k) and IRA withdrawals, and investment income. We also identify the best state for your specific retirement income profile, because the optimal state varies depending on whether you rely primarily on Social Security, a government pension, a private pension, or investment portfolio withdrawals.
The following states impose no state income tax on any retirement income — Social Security, pensions, 401(k) withdrawals, IRA distributions, annuities, and investment income are all free from state income tax.
These states have no state income tax at all, so by definition all income including retirement income is untaxed at the state level:
| State | Income Tax Rate | What’s Exempt | Notes |
|---|---|---|---|
| Illinois (IL) | 4.95% flat | All retirement income — pensions, SS, 401(k), IRA, annuities | One of the most generous retirement income exemptions; other income (wages, interest, dividends, capital gains) is taxed at 4.95% |
| Mississippi (MS) | 4.0% flat (reducing) | All retirement income — pensions, SS, 401(k), IRA | MS reduced its income tax rate to 4.0% flat for 2026, with further phase-down to 3.0% by 2030 under a 2025 law; retirement income fully exempt throughout |
| Pennsylvania (PA) | 3.07% flat | All retirement income after age 59½ — pensions, SS, 401(k), IRA | PA exempts retirement income broadly but PA inheritance tax at 4.5% still applies on inherited retirement accounts |
| Iowa (IA) | 3.8% flat (2026) | All retirement income as of January 1, 2023 | Iowa overhauled its retirement income treatment in 2023 — previously complex partial exemptions now replaced with full exemption for taxpayers 55+ |
The federal government taxes 0–85% of Social Security benefits depending on your combined income. But 42 states impose zero additional state tax on Social Security income. The 8 states that do tax Social Security to some degree are listed below, with their specific rules.
| State | SS Tax Treatment | Income Threshold for Exemption |
|---|---|---|
| Minnesota (MN) | Taxed, with a subtraction that phases out with income | 2026: all taxable SS is subtracted if federal AGI is under $86,410 (single) or $110,780 (married joint); the subtraction is reduced as income rises above that |
| Vermont (VT) | Partially exempt below income threshold | 2025: fully exempt up to $55,000 AGI (single) or $70,000 (joint); partially exempt up to $65,000 / $80,000; no exemption above |
| Rhode Island (RI) | Exempt below an income threshold at full retirement age | Must have reached full retirement age with AGI below the annual threshold ($107,000 for single filers in tax year 2025) |
| Utah (UT) | Credit-based system | Nonrefundable credit of 4.5% of taxable SS (2025), phased out above $54,000 (single) or $90,000 (joint) of modified AGI |
| Connecticut (CT) | Exempt below threshold; partially taxed at or above | Fully exempt if AGI is under $75,000 (single) or $100,000 (joint); partially exempt above |
| Colorado (CO) | Age-based subtraction | Age 65+: subtract all federally taxable SS. Ages 55–64: subtract all if AGI is $75,000 or less (single) / $95,000 or less (joint); otherwise capped at $20,000 |
| New Mexico (NM) | Full exemption under income threshold | SS exempt if income is under $100,000 (single) or $150,000 (married filing jointly) |
| Montana (MT) | Generally follows federal rules | Taxable SS is included in Montana income; residents 65+ get a flat age subtraction ($5,660 for 2025) |
Note: Iowa (2023), Kansas and Missouri (2024), Nebraska (2024) and West Virginia (2026) have eliminated state tax on Social Security. Always verify the current year’s rules as state legislatures continue to reform retirement income taxation.
State taxation of pension income, 401(k) distributions, and IRA withdrawals varies significantly. Some states exempt government pensions but tax private pensions. Others exempt all pension income but tax IRA withdrawals. Here are the key patterns:
Illinois, Mississippi, Pennsylvania, and Iowa (55+) exempt all pension, 401(k), and IRA distributions. If your retirement income is primarily from these sources, these states offer maximum advantage.
| State | Government Pension Treatment | Private Pension / 401(k) / IRA Treatment |
|---|---|---|
| Missouri (MO) | Public pensions and Social Security: subtract up to the maximum Social Security benefit ($48,967 for 2026), with no AGI limit from 2024 | Private pensions: exemption up to $6,000 (income limits apply: $25,000 single, $32,000 married filing combined); see the Missouri pension FAQ for other retirement withdrawals |
| Kentucky (KY) | Kentucky state, local-government and federal pensions: separate exclusion rules apply (Schedule P) | Pensions, annuities, IRAs and 401(k) income paid under a written plan: exclusion of up to $31,110 per person (2025) |
| Michigan (MI) | Public pensions: from 2026 limited to the private-retirement maximum (unlimited for those born before 1946) | From 2026 (Public Act 4 of 2023 fully phased in): deduction up to $65,897 single / $131,794 married (2025 limits; indexed annually), no longer tiered by birth year for most retirees |
| New York (NY) | NY state/local and federal government pensions fully exempt | Private pension exclusion of $20,000 for ages 59½+; 401(k) and IRA distributions qualify for the $20,000 exclusion; remainder taxable |
The following states treat pension, 401(k), and IRA income as ordinary income with no special retirement exemptions (beyond standard deductions):
The best state for retirement depends on where your income comes from. Here are the optimal states for four common retiree income profiles:
42 states fully exempt Social Security, making them all competitive. Within that group, consider total tax burden. Best choices: Florida, Tennessee, or Texas (no income tax, low overall burden); Illinois or Pennsylvania if you also have pension income (full retirement exemption is attractive); avoid Minnesota, Vermont, or Connecticut if SS income is your primary source and income is above threshold levels.
Best choices: Illinois (all pension income fully exempt regardless of amount — a retired state worker or federal employee saves significantly), Mississippi, Pennsylvania (3.07% flat but retirement income after 59½ fully exempt). Illinois is particularly favorable for high-value pensions because the exemption is unlimited — a $150,000/year pension is just as exempt as a $30,000/year pension.
Best choices: Wyoming, South Dakota, or Nevada (no income tax, no tax on any withdrawals); Florida (no income tax); Pennsylvania (retirement income after 59½ fully exempt including 401(k) and IRA distributions). Avoid California (up to 13.3% on all withdrawals) or Minnesota (up to 9.85%).
Best choices: Wyoming, South Dakota, or Nevada (no income tax including no capital gains tax); Texas or Florida (no income tax). Note: Washington State charges a 7% capital gains excise tax (9.9% on gains over $1 million) above an indexed deduction ($278,000 for 2025), making it less attractive for retirees with large capital gains. New Hampshire repealed its interest and dividends tax effective 2025.
| Income Profile | Top State Picks | States to Avoid |
|---|---|---|
| Social Security | FL, TN, TX, IL, PA | MN, VT, CT (high income) |
| Pension income | IL, MS, PA, FL | CA, MN, VT |
| 401(k)/IRA withdrawals | WY, SD, NV, FL, PA | CA, MN, OR |
| Investment/capital gains | WY, SD, NV, TX, FL | CA, MN, WA (large gains) |
| Mixed income retiree | FL, TX, TN (no income tax) | CA, MN, VT |
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US retirement tax planning and filing for retirees navigating Social Security, pension, and withdrawal taxation.
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