What States Don’t Tax Retirement Income?

You’ve worked hard your entire career to earn a living and save for retirement. Now, you want to make sure your retirement is protected and lasts as long as possible. You don’t want to hand over a portion of your retirement income to the IRS if you don’t have to.

Unfortunately, many states tax retirement income. Depending on where you live, the money you worked so hard to build up for the future could be subject to taxes down the road. States like Arizona and New Mexico are popular for snowbirding Alaskans; however, it’s important to be aware that they do tax your retirement income.

The good news is that not all states operate this way. Alaska, for instance, does not tax your retirement income at all. However, many Alaskans plan to move out of state for retirement for lower cost of living, easier climates, closeness to family, and access to healthcare.

Are you considering a move out of Alaska when you retire, but you don’t want your retirement income, including your pension, to be subject to taxes? If so, here are all the states that will not tax your retirement income.

Note: A good rule of thumb when assessing retirement income taxes is to look at states that require income tax or not. States without a personal income tax usually don’t tax retirement benefits like 401(k)s, IRAs, or pensions, as they are considered income. 



You likely already know that Alaska does not tax your retirement income. However, not all Alaskans plan to live in the state permanently. Some retire out of state, mostly to avoid the winters, but return to Alaska during the summers. Alaska offers a generous cost-of-living allowance to residents and you may not want to give that up when you retire. However, you are only entitled to Alaska’s COLA if you are gone for 90 days or less. Keep that in mind if you plan to leave the state in retirement.


Perhaps the most popular state to retire to, Florida attracts people from all over the country. The Sunshine State offers beautiful beaches, warm weather, and tons of amenities (like Disney World). Like Alaska, you won’t find taxes on any retirement income here. Plus, estate and inheritance taxes are nowhere to be found.


Although Illinois does have a small income tax (4.95%), it does not tax 401(k), IRA, and pension income. It’s one of the only midwestern states to offer this. However, 401(k), IRA, and pension income must be from a qualified employee plan to qualify for tax-exempt status. It’s also important to note that Illinois has an estate tax for estates worth over $4 million.


There is no retirement tax in Mississippi unless you retire early (before 59 ½ years old). If you retire early, however, you’ll be subject to Mississippi’s income tax of 5% for any income over $10,000. Check the state’s income tax rate for income lower than $10,000. Mississippi does not have estate or inheritance taxes, or taxes on social security benefits.


Home to Las Vegas and its plethora of opportunities to win some big money, Nevada gives you some extra gambling money by not taxing any retirement income. In fact, there is no income tax or estate tax whatsoever, making it one of the most tax-friendly states to retire in.

New Hampshire

The New England area is typically not a retirement-friendly area in terms of taxes. That is, however, except for New Hampshire, the only state in the area without a typical income tax. There is a flat 5% tax on interests and dividends, but no other income tax, estate tax, or social security tax.


Pennsylvania doesn’t tax your retirement income like 401(k), IRA, and pension benefits as long as they come from an eligible employer-sponsored retirement plan and you don’t retire early. This state, however, does have an income tax of 3.07%, not including an additional tax that could come from certain school districts or municipalities. Also, if you’re thinking about estate or inheritance taxes, consider Pennsylvania’s tax rate.

South Dakota

Just like Alaska, South Dakota features lots of open spaces and beautiful scenery. And also like in Alaska, you won’t find any retirement tax here. You can retire here with all of your retirement benefits at your disposal and you never have to worry about estate or inheritance taxes.


Tennessee doesn’t tax retirement income like 401(k)s, IRAs, or pensions. There is no income tax in the state as of 2021. (There was a flat 1% tax on interest and dividends only in 2020, but that has been changed to 0% for 2021 and later.) If you love beautiful scenery without the blistering cold, Tennessee has a lot to offer.


Perhaps the perfect retreat during those long cold winters in Alaska, Texas is a great state to retire in part of the year. There is no personal income tax and no taxes on retirement income, social security benefits, or inheritances and estates. It’s one of the most tax-friendly states to live in.


Another beautiful state to live in if you love the scenery of Alaska or have family already living here, Washington is a very retirement-friendly state. There is no income tax of any kind, making your retirement income from 401(k)s, IRAs, and pensions free from the IRS. There is an estate tax, but no inheritance tax in Washington.  Also, keep in mind that there are local and state sales taxes that can affect low and middle-income earners disproportionally hardest.


If you’re looking for scenery and privacy like you find in Alaska, Wyoming is a great choice. Just like Texas, Wyoming doesn’t tax retirement income, social security, or inheritances and estates. You can spread out in the wide-open spaces and relax, knowing your retirement income is safe.

Again, you’ve worked hard to earn a good retirement income. You don’t want the IRS taking a chunk of it every year when it’s avoidable. Deciding on where to retire is an important decision that shouldn’t be made absent of this critical consideration.

If you’re looking for some detailed assistance on this, a financial advisor can help you assess your retirement destination options based on your personal retirement situation. Talk to a financial advisor today.

Stop guessing. Start planning.