Last Updated: April 2026
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 between living in Illinois and living in California could easily exceed $4,000–6,000 per year in state income tax — 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; investment income from stocks and bonds is also partially treated favorably |
| Mississippi (MS) | Up to 4.7% (reducing) | All retirement income — pensions, SS, 401(k), IRA | MS is reducing its income tax rate toward 4.0% by 2026; 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) | Up to 5.7% (reducing) | 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 36 states impose zero additional state tax on Social Security income. The 11 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 partial exclusion based on income | Married filers with AGI under ~$105,380 can deduct some SS; full taxation above thresholds |
| Vermont (VT) | Partially exempt below income threshold | Full exemption if AGI under $65,000 (single) or $85,000 (married); taxed above |
| Rhode Island (RI) | Partially exempt below income threshold | Exempt if below Social Security full retirement age and AGI under ~$101,000 (married) |
| Utah (UT) | Credit-based system | SS income taxed but credit offsets tax for most retirees with moderate income; effectively 0% for many |
| Connecticut (CT) | Exempt below threshold; taxed above | Fully exempt if AGI under $75,000 (single) or $100,000 (married); taxed on 25% of SS benefits above threshold |
| Kansas (KS) | Exempt under $75,000 AGI | SS fully exempt if AGI is $75,000 or less; fully taxable above — binary cliff, no phase-out |
| Missouri (MO) | Exempt under $85,000 AGI (single) | Fully exempt under $85,000 single/$100,000 married; taxable above |
| Nebraska (NE) | Phasing to full exemption | Nebraska is phasing out SS taxation; 60% excluded in 2022, 80% in 2023, 100% exempt from 2024 — effectively now exempt |
| Colorado (CO) | Partial exemption based on age and income | Up to $24,000 exempt if 65+; up to $20,000 exempt ages 55–64; SS income included in this limit |
| West Virginia (WV) | Phasing to full exemption | 35% of SS taxable in 2024; 0% from 2026 onward — WV is phasing out SS taxation |
| New Mexico (NM) | Full exemption under income threshold | SS fully exempt if income under $100,000 (single) or $150,000 (married filing jointly) |
Note: Montana (MT) had partial SS taxation but eliminated it effective 2024. Several other states have eliminated SS taxation in recent years. 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) | State and local government pensions largely exempt; SS exempt under $85,000 AGI | Private pensions: deduction up to $6,000 single/$12,000 married for qualifying pension income; 401(k) and IRA withdrawals generally taxable |
| Kentucky (KY) | State and local government pensions exempt up to $41,110 | Private pensions: same $41,110 exclusion; applies to all types of retirement income including 401(k) withdrawals |
| Michigan (MI) | Government pensions: tiered exemption by birth year | Private pensions: born before 1946 — fully exempt; born 1946–1952 — partial exemption; born after 1952 — limited deduction |
| 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:
36 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 introduced a 7% capital gains excise tax in 2022 on gains over $262,000, making it less attractive than it once was for retirees with large capital gains. New Hampshire is phasing out its interest and dividend tax (0% from 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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Get Started with TaxHub →36 states and DC do not tax Social Security benefits at the state level. The 9 no-income-tax states (Florida, Texas, Washington, Nevada, Wyoming, South Dakota, Tennessee, New Hampshire, Alaska) tax no income including Social Security. States with income tax that fully exempt Social Security include Illinois, Pennsylvania, Mississippi, Georgia, Alabama, Arkansas, and many others. The states that still tax Social Security to some degree include Minnesota, Vermont, Rhode Island, Utah, Connecticut, Kansas, Missouri, Colorado, and West Virginia (though several are phasing out SS taxation).
In many states, yes. Some states exempt government pensions (paid to retired public employees) but tax private pension or IRA distributions. New York, for example, fully exempts all NY state and federal government pensions but only allows a $20,000 exclusion for private pensions and IRA withdrawals. Illinois, Mississippi, and Pennsylvania are the most generous — they fully exempt all retirement income regardless of source, including both government and private pensions, 401(k) distributions, and IRA withdrawals.
No — California does not tax Social Security benefits, which is one of the few tax advantages for California retirees. However, California taxes all other retirement income — pensions, 401(k) withdrawals, IRA distributions, and investment income — at regular California income tax rates up to 13.3%. A California retiree with $100,000 in pension and IRA income (plus Social Security) could pay $5,000–8,000+ in California state income tax annually on the non-SS portion.
Illinois is among the most favorable states for pension income because it fully exempts all pension and retirement income — government pensions, private pensions, 401(k) distributions, IRA withdrawals, and Social Security — with no upper limit and no income phase-out. A retired teacher or government employee receiving a $100,000 annual pension pays zero Illinois income tax on that pension. The trade-off: Illinois has high property taxes (2.08% effective rate, second highest nationally) and significant fiscal challenges. For retirees who rent or have modest property, Illinois’s full retirement income exemption can make it very tax-efficient.
Iowa made a significant change effective January 1, 2023. Previously, Iowa had a complex partial exemption system for retirement income. The 2022 Iowa tax reform legislation fully exempted all retirement income (Social Security, pensions, 401(k) withdrawals, IRA distributions) for taxpayers age 55 and older. This was a major improvement that essentially moved Iowa into the top tier for retirement income taxation, similar to Illinois and Pennsylvania. Iowa is also reducing its overall income tax rates toward a 3.9% flat rate by 2026.