States that do not tax retirement income can reduce a retiree’s state bill, but the rules vary: some exempt only particular income streams, while nine states impose no broad income tax.
States that do not tax retirement income have different rules
A state exemption is not always a blanket break. Arkansas, for example, excludes up to $6,000 a year from certain pension and IRA income, while Pennsylvania exempts several common retirement income sources. The source of the money, a resident’s age, and the type of account can all affect what qualifies.
The comparison below reflects the rules described here. A state income tax exemption does not cancel federal tax, and other state taxes can still matter.
| State | Income with a state tax break | Eligibility and trade offs |
|---|---|---|
| Arkansas | Social Security and military retirement pay are exempt. Up to $6,000 a year from public or private employer pensions and traditional IRA distributions may also be exempt. | The pension and IRA break applies after age 59½, or when distributions follow death or disability. Arkansas has no estate or inheritance tax. |
| Illinois | Pensions, 401(k) and IRA withdrawals, Social Security, and military retirement pay are exempt. | Other investment earnings are taxable. Illinois also has estate and inheritance taxes. |
| Iowa | Pension, annuity, and IRA income is not taxed for residents over age 55. | The exemption took effect in January 2023. Iowa moved to a flat income tax rate of 3.8% on January 1, 2025, and eliminated its inheritance tax. |
| Mississippi | Retirement plan distributions, pensions, annuities, Social Security, and military retirement pay are exempt. | Early retirement plan withdrawals generally do not qualify. Mississippi has no estate or inheritance tax. |
| New Hampshire | Social Security and pension income are not taxed. | The state has no tax on wages. Its tax on interest and dividends ended January 1, 2025. It has no estate or inheritance tax. |
| Pennsylvania | Social Security, pension income, and retirement plan distributions are exempt. | The state still has a flat income tax rate. Older adults may qualify for a property tax or rent rebate. |
| South Carolina | Social Security and all military retirement pay are exempt. | The listed exemptions do not mean every kind of retirement income is tax free. |
Those distinctions can change the value of a move. An Illinois retiree with income from investments, for instance, may still owe state tax even if pension and account withdrawals are exempt. In Arkansas, someone younger than 59½ may not qualify for the stated pension and traditional IRA exemption unless the distribution follows death or disability.
Tax treatment is only one part of the household budget. Property and sales taxes can still apply in states that offer retirement income relief, and an estate or inheritance tax may affect what heirs receive. Illinois has both; Arkansas and Mississippi have neither, according to the rules summarized above.
Nine states have no broad income tax
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the nine states identified as having no income tax. For retirees, that generally means no state income tax on pension payments, Social Security, or retirement account withdrawals.
Washington is a qualified case: it taxes capital gains for high earners, even though it is included in the no income tax count. New Hampshire is also included, and its tax on interest and dividends was repealed as of January 1, 2025.
No income tax does not mean no taxes. Property taxes and sales taxes may still be levied, so compare the full cost of living rather than treating the income tax label as a complete measure of affordability. The list also does not settle questions such as housing costs or how well a state fits a retiree’s circumstances.
Federal tax rules still apply to pensions and benefits
There is no age at which pension income automatically stops being taxable. Most pensions may be subject to federal income tax, and state treatment depends on where the retiree lives and the rules for that specific income. A state exemption therefore does not erase a federal tax obligation.
Social Security benefits can also be taxable federally when combined income passes certain levels. For single filers with combined income from $25,000 to $34,000, as much as 50% of benefits may be taxable. Above $34,000, up to 85% may be taxable. For married couples filing jointly, the corresponding ranges are $32,000 to $44,000 and above $44,000.
Required minimum distributions are another federal consideration. Withdrawals from tax deferred accounts must begin at age 73. That deadline can shape how much taxable income a retiree reports later, even when the state does not tax the distribution.
Withdrawal timing can affect a retirement tax bill
One approach to consider is drawing first from taxable accounts, then from tax deferred accounts such as 401(k)s and traditional IRAs. That can leave tax advantaged savings invested for longer, though the right sequence depends on a person’s income and account mix.
Some retirees consider converting part of a traditional IRA to a Roth IRA before required distributions begin. Roth IRAs are not subject to required minimum distributions, but a conversion can affect taxes in the year it is made. Delaying Social Security until age 70 can increase benefits while keeping income lower earlier in retirement, according to the source material.
Charitable donations and eligible medical deductions may also affect taxable income. Anyone weighing a move or a change in withdrawal strategy should check current state rules and federal tax consequences, since the exemptions described here do not cover every income source or household situation.