Where you live in retirement can dramatically affect how much of your savings you actually keep. Some states tax every dollar of retirement income at rates approaching 10%, while others don’t tax retirement income at all. For retirees trying to stretch their savings, understanding these differences is essential.
As of 2026, thirteen states don’t tax retirement income from 401(k)s, IRAs, and pensions. Nine of these states have no income tax whatsoever, while four others specifically exempt retirement distributions. Additionally, 42 states plus the District of Columbia now fully exempt Social Security benefits from state taxation, with West Virginia completing its phase-out in 2026.
This guide breaks down which states offer the most favorable tax treatment for retirees and what to consider beyond income taxes when choosing where to spend your retirement years.
States With No Income Tax
The simplest path to avoiding state taxes on retirement income is living in a state that doesn’t tax income at all. Nine states fall into this category for 2026:
- Alaska has no state income tax, no state sales tax, and pays residents an annual dividend from oil revenues through the Permanent Fund. The 2025 dividend was $1,000 per resident. Alaska also has no estate or inheritance tax. However, the cost of living is high, and the climate isn’t for everyone.
- Florida is the most popular destination for retirees seeking tax-friendly treatment. No income tax applies to any source, including pensions, 401(k) distributions, IRA withdrawals, and Social Security. Florida has no estate or inheritance tax either. The trade-off is a 6% state sales tax (plus local taxes that can push combined rates above 8%) and property taxes that vary significantly by county.
- Nevada offers no income tax and no estate or inheritance tax. The state does have a relatively high combined sales tax rate, averaging around 8.2% when local taxes are included. Property taxes are moderate compared to national averages.
- New Hampshire became a true no-income-tax state in 2025 when it completed the phase-out of its tax on interest and dividends. Before this change, New Hampshire taxed investment income but not wages or retirement distributions. Now all income types are exempt from state taxation.
- South Dakota has no income tax, no estate tax, and no inheritance tax. Property taxes are moderate, and the combined state and local sales tax rate averages around 6.4%. South Dakota is increasingly popular among retirees seeking tax efficiency.
- Tennessee eliminated its Hall Tax on interest and dividends in 2021, making it a fully no-income-tax state. Tennessee has no estate or inheritance tax. The state does have one of the highest combined sales tax rates in the country, averaging around 9.5% when local taxes are included.
- Texas is another major retirement destination with no income tax. Texas has no estate or inheritance tax. However, property taxes are among the highest in the nation, which can significantly affect retirees who own their homes. Sales taxes are also relatively high, with combined rates averaging around 8.2%.
- Washington has no traditional income tax on wages, pensions, or retirement account distributions. However, Washington does tax capital gains at 7% on gains exceeding $278,000 annually (with an additional 2.9% tax on gains over $1 million). Washington also has an estate tax with exemptions starting at $3 million and rates ranging from 10% to 35%.
- Wyoming has no income tax, no estate tax, and relatively low combined sales taxes averaging under 6%. Property taxes are also below the national average. Wyoming is one of the most comprehensively tax-friendly states for retirees.
States That Exempt Retirement Income
Four additional states have income taxes but fully exempt retirement income from 401(k)s, IRAs, and pensions:
- Illinois has a flat 4.95% income tax rate, but all retirement income is exempt. This includes pensions, 401(k) distributions, IRA withdrawals, and Social Security benefits. For retirees whose income comes primarily from retirement accounts, Illinois effectively functions as a no-tax state. However, Illinois has some of the highest property taxes in the nation, averaging over 2% of assessed home value.
- Iowa exempts all retirement income for residents age 55 and older. This includes pensions, 401(k) and IRA distributions, and Social Security benefits. Iowa is transitioning to a flat 3.8% income tax rate in 2026 for non-retirement income. Property taxes in Iowa are moderate.
- Mississippi exempts all qualified retirement income from state taxation. The state income tax rate is dropping to 4% in 2026 and is scheduled to continue decreasing until it’s eliminated entirely. Mississippi offers a relatively low cost of living overall, though it does tax groceries at the full sales tax rate.
- Pennsylvania charges a flat 3.07% income tax but exempts all retirement income as long as you’ve met plan requirements. This includes pensions, 401(k)s, IRAs, and Social Security. Early withdrawals before age 59½ may not qualify for the exemption. Pennsylvania has no sales tax on most groceries and clothing.
- Michigan deserves special mention. As of the 2026 tax year, Michigan fully exempts most retirement income from state taxation. This includes pensions, 401(k) distributions, IRA withdrawals, annuities, and certain deferred compensation. The change was phased in starting in 2023 and is now fully effective. For retirees, Michigan now functions similarly to Illinois, Iowa, Mississippi, and Pennsylvania.
| State | Income Tax Rate | 401(k)/IRA | Pensions | Social Security |
| Alaska | None | Not taxed | Not taxed | Not taxed |
| Florida | None | Not taxed | Not taxed | Not taxed |
| Nevada | None | Not taxed | Not taxed | Not taxed |
| New Hampshire | None | Not taxed | Not taxed | Not taxed |
| South Dakota | None | Not taxed | Not taxed | Not taxed |
| Tennessee | None | Not taxed | Not taxed | Not taxed |
| Texas | None | Not taxed | Not taxed | Not taxed |
| Washington | None* | Not taxed | Not taxed | Not taxed |
| Wyoming | None | Not taxed | Not taxed | Not taxed |
| Illinois | 4.95% | Exempt | Exempt | Exempt |
| Iowa | 3.8% (2026) | Exempt | Exempt | Exempt |
| Michigan | 4.25% | Exempt (2026) | Exempt (2026) | Exempt |
| Mississippi | 4% (2026) | Exempt | Exempt | Exempt |
| Pennsylvania | 3.07% | Exempt | Exempt | Exempt |
*Washington taxes capital gains over $278,000 at 7%
States That Tax Social Security Benefits
While 42 states and the District of Columbia fully exempt Social Security benefits from state taxation, eight states still tax at least a portion of benefits for some residents in 2026. West Virginia completed its phase-out and now fully exempts Social Security starting with 2026 tax returns.
- Colorado taxes Social Security for residents ages 55-64 if their adjusted gross income exceeds $75,000 (single) or $95,000 (married filing jointly). Residents 65 and older can subtract the full amount of federally taxable Social Security benefits from their Colorado return.
- Connecticut exempts Social Security for residents with AGI below $75,000 (single) or $100,000 (married filing jointly). Above these thresholds, up to 25% of benefits may be taxable.
- Minnesota provides a full exemption for residents with AGI below $84,490 (single) or $108,320 (married filing jointly). The exemption phases out by 10% for each $4,000 of income above these thresholds.
- Montana follows a structure similar to federal taxation. Benefits may be partially taxable if AGI exceeds $25,000 (single) or $32,000 (married filing jointly), with up to 85% taxable at higher income levels.
- New Mexico exempts Social Security for residents with AGI below $100,000 (single) or $150,000 (married filing jointly). Most retirees with moderate incomes pay no state tax on benefits.
- Rhode Island exempts Social Security for residents who have reached full retirement age and have an AGI below $107,000 (single) or $133,750 (married filing jointly).
- Utah provides a retirement tax credit that can offset or eliminate state tax on Social Security for many retirees, depending on income and filing status. The credit phases out at higher income levels.
- Vermont offers a partial exemption for Social Security benefits. Joint filers with AGI up to $70,000 and single filers with AGI up to $55,000 receive a full exemption. Partial exemptions apply at higher income levels.
Understanding how Social Security taxation interacts with other retirement income is important for optimizing your retirement income and minimizing your overall tax burden.
Beyond Income Tax: Other Taxes That Affect Retirees
Focusing solely on income tax can be misleading. States with no income tax often make up revenue through other means that can significantly affect retirees.
Property Taxes
Property taxes vary dramatically by state and even by county within states. Texas, for example, has no income tax but has some of the highest property taxes in the nation, often exceeding 2% of assessed value annually. A $400,000 home in Texas could generate property tax bills of $8,000 or more per year.
In contrast, states like Alabama, Louisiana, and Hawaii have low property tax rates, often under 0.5% of assessed value. Many states offer property tax exemptions or freezes for residents over a certain age or below certain income thresholds.
Sales Taxes
States without income taxes often have higher sales taxes. Tennessee and Louisiana have combined state and local sales tax rates exceeding 9%, while Oregon, Montana, New Hampshire, and Delaware have no sales tax at all. For retirees who spend rather than save most of their income, high sales taxes can significantly erode purchasing power.
Estate and Inheritance Taxes
If you plan to leave assets to heirs, estate and inheritance taxes matter. Twelve states plus the District of Columbia have their own estate taxes with exemptions ranging from $1 million (Oregon) to $15 million (Connecticut, which matches the federal exemption).” Or alternatively, if you want to focus on the range most retirees care about: “…with exemptions ranging from $1 million (Oregon) to $7.35 million (New York), with Connecticut matching the federal $15 million exemption. The federal estate tax exemption is $15 million for 2026.
Five states have inheritance taxes: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland is the only state with both an estate tax and an inheritance tax.
Strategies for Tax-Efficient Retirement
Regardless of where you live, several strategies can help minimize the taxes you pay on retirement income.
Your state of residence directly affects the true cost of Roth conversions. In states with no income tax, Roth conversions are taxed only at the federal level — potentially saving you 4–10% in state taxes on every dollar converted. This connection between state tax treatment and Roth conversion strategy is one of the most overlooked optimization opportunities in retirement planning.
Consider Roth Conversions Before Relocating
If you plan to move from a high-tax state to a no-tax state, consider the timing of Roth conversions for retirees. Converting traditional IRA funds to Roth after you’ve established residency in a no-tax state means you pay federal tax on the conversion but avoid state tax entirely. Understanding the tax impact of Roth conversions can help you plan the optimal timing.
Manage Income to Stay Below Thresholds
In states that tax Social Security above certain income levels, managing your AGI can help you avoid or minimize the tax. Strategies include delaying IRA withdrawals, using Roth distributions (which don’t count toward AGI), and timing the sale of investments. The relationship between Roth conversions and RMDs affects how much flexibility you have in managing taxable income.
Account for Medicare Premium Impacts
Your modified adjusted gross income affects Medicare Part B and Part D premiums through IRMAA surcharges. Higher income can impact your Medicare premiums significantly. When evaluating state tax savings, factor in how income decisions affect your overall costs.
Use Our RMD Calculator
Required minimum distributions can push you into higher tax brackets or trigger taxes on Social Security. Use our RMD calculator to understand how much you’ll be required to withdraw and plan accordingly.
Choosing the Right State for Your Retirement
Tax considerations are important, but they shouldn’t be the only factor in choosing where to retire. Climate, proximity to family, healthcare access, and overall cost of living all matter.
A state with no income tax but high property taxes might cost more overall than a state with moderate income taxes and low property taxes. Similarly, a state with low taxes but limited healthcare infrastructure or high utility costs might not be the best choice for your situation.
Consider creating a comprehensive comparison that includes estimated taxes on all your income sources, plus property taxes, sales taxes on your typical spending, healthcare costs, housing costs, and other living expenses. The state with the lowest income tax rate isn’t necessarily the state where your money will go furthest.
Conclusion
For retirees seeking to minimize state taxes on retirement income, thirteen states stand out in 2026. Nine states have no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Four additional states exempt retirement income despite having an income tax: Illinois, Iowa, Mississippi, and Pennsylvania. Michigan now joins this group with its full retirement income exemption taking effect in 2026.
Social Security taxation has become increasingly favorable for retirees. Only eight states tax Social Security benefits in 2026, and most of these provide exemptions for moderate-income retirees. West Virginia completed its phase-out, joining the 42 states that fully exempt Social Security.
Before making any relocation decisions based on taxes, consider the complete picture. Property taxes, sales taxes, estate taxes, and the cost of living can all affect how far your retirement savings go. Working with a financial advisor who understands both state tax implications and comprehensive retirement planning can help you make the choice that best serves your long-term financial security.
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Frequently Asked Questions
Which states have no income tax in 2026?
Nine states have no income tax in 2026: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire completed its phase-out of the interest and dividends tax in 2025, making it fully income-tax-free.
What states don’t tax 401(k) withdrawals?
Thirteen states don’t tax 401(k) withdrawals in 2026. The nine no-income-tax states exempt all income, while Illinois, Iowa, Mississippi, and Pennsylvania specifically exempt retirement income, including 401(k) distributions. Michigan also fully exempts retirement income starting in 2026.
Which states tax Social Security benefits in 2026?
Eight states tax Social Security benefits in 2026: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. Most of these provide exemptions for retirees below certain income thresholds. West Virginia completed its phase-out and fully exempts Social Security starting in 2026.
Does Florida tax retirement income?
No. Florida has no state income tax, so all retirement income, including pensions, 401(k) distributions, IRA withdrawals, and Social Security benefits, is exempt from state taxation. Florida also has no estate or inheritance tax.
Is Texas a good state for retirees, tax-wise?
Texas has no income tax, which benefits retirees with substantial retirement income. However, Texas has some of the highest property taxes in the nation. Retirees who own their homes may find that property tax costs offset some or all of the income tax savings.
What is the most tax-friendly state for retirees?
The answer depends on your specific situation. For retirees with high retirement income and who rent rather than own, Florida, Nevada, and Wyoming offer comprehensive tax advantages. For homeowners, states like Pennsylvania or Mississippi may be more favorable due to lower property taxes combined with retirement income exemptions.
Do I have to live in a state full-time to claim residency?
State residency rules vary, but most states require you to be domiciled there, meaning it’s your permanent home. Factors include where you’re registered to vote, where your driver’s license is issued, where you spend the majority of your time, and where your primary residence is located. Maintaining ties to a high-tax state while claiming residency in a low-tax state can trigger audits.
Should I move to a no-tax state just for tax savings?
Tax savings alone rarely justify a major life change. Consider your quality of life, proximity to family and friends, healthcare access, climate preferences, and overall cost of living. A state with moderate taxes and lower housing costs might leave you better off financially than a no-tax state with expensive real estate.
Plan Your Tax-Efficient Retirement Today!
State tax planning is just one piece of a comprehensive retirement strategy. Q3 Advisors can help you evaluate relocation decisions, optimize your withdrawal strategy, and minimize taxes across all aspects of your retirement plan. To explore how state tax considerations fit into your overall financial picture, schedule a consultation with our team.
