States That Don’t Tax Retirement Income (2026)

Which States Are Best for Retirees Looking to Minimize Taxes?

Nine states charge zero state income tax — meaning your pension, Social Security, IRA withdrawals, and annuity income are completely free from state taxation. Beyond those nine, more than a dozen additional states have passed specific retirement income exemptions covering pensions, Social Security, or both. Where you live in retirement can easily mean a $3,000–$10,000+ annual difference in after-tax income. This guide gives you the complete 2026 picture, organized by what matters most to you.

States with No State Income Tax (Zero Tax on All Retirement Income)

The simplest retirement tax situation: move to a state with no income tax and your pension, Social Security, annuity income, and IRA withdrawals all escape state taxation entirely. As of January 2026, nine states impose no general state income tax: Important: Federal income tax applies in all 50 states regardless of where you live. The no-income-tax benefit is state tax only. See our federal Social Security tax section below for details on how much of your benefits Uncle Sam can take.

States That Don't Tax Pension Income

Beyond the nine zero-income-tax states, several states with an income tax specifically exempt pension income — either fully or partially. States that exempt most or all pension income (2026):

• Alabama — Pensions from defined benefit plans are fully exempt from state income tax. Alabama Dept. of Revenue
• Hawaii — Most public and private pensions are exempt. (Exception: if you contributed to the pension and those contributions weren't taxed, that portion is taxable.) Hawaii Dept. of Taxation
• Illinois — All retirement income, including pensions, Social Security, and IRA/401(k) distributions, is exempt from Illinois state income tax — one of the most generous retirement tax policies in the country. Illinois Dept. of Revenue
• Iowa — As of 2023, Iowa exempts all retirement income for taxpayers age 55 and older, including pensions, Social Security, and IRA/401(k) withdrawals. Iowa Dept. of Revenue
• Michigan — New for 2026: Completed the phase-out of its retirement income tax under Public Act 4 of 2023. Pensions, 401(k)/IRA distributions, and other qualifying retirement income are now exempt up to $67,610 (single) / $135,220 (joint). This applies to all retirees regardless of birth year. Michigan Treasury: Retirement Benefits
• Mississippi — Retirement income, including pensions and 401(k)/IRA distributions, received after age 59½ is fully exempt from Mississippi income tax. Mississippi Dept. of Revenue
• Pennsylvania — Most retirement income, including pensions from qualified plans, Social Security, and IRA/401(k) distributions after age 59½, is exempt from Pennsylvania personal income tax. Pennsylvania Dept. of Revenue

States with partial pension exemptions (2026): If you have a specific pension type — government, military, or private sector — the rules vary by state. Always verify with your state's current tax rates and revenue department.

States That Don't Tax 401(k) and IRA Withdrawals

If your primary retirement income comes from a 401(k), 403(b), traditional IRA, or other tax-deferred account, state tax treatment matters — especially since required minimum distributions (RMDs) begin at age 73 (or 75 for those born in 1960+). States that fully exempt 401(k)/IRA withdrawals from state income tax:

• 9 no-income-tax states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming
• Illinois — All qualified retirement distributions are exempt
• Iowa — Exempt for taxpayers age 55+
• Michigan — Exempt up to $67,610 (single) / $135,220 (joint) starting 2026
• Mississippi — Exempt for distributions received after age 59½
• Pennsylvania — Exempt for distributions received after age 59½

That totals 14 states where your 401(k) or IRA withdrawals face zero state income tax. In the remaining 36 states (plus D.C.), withdrawals are taxed as ordinary income at your state's marginal rate — which can range from 2.5% (Arizona, North Dakota) to 13.3% (California). Example: Robert, age 74, withdraws $45,000 from his traditional IRA as a required minimum distribution. If he lives in California (top marginal rate: 13.3%), he could owe up to $4,000+ in state taxes on that withdrawal. If he lives in Illinois — $0.

States That Don't Tax Social Security Benefits

Social Security is the largest income source for most retirees, and approximately 42 states don't tax it at all as of 2026. Federal tax on Social Security income still applies based on your combined income (up to 85% of benefits may be taxable federally — see federal thresholds below). The states that DO tax Social Security benefits (2026) — the shorter list:

1. Colorado — But exempts up to $20,000 for those under 65, $24,000 for those 65+
2. Connecticut — Exempt if your AGI is under $75,000 (single) or $100,000 (married)
3. Kansas — Exempt if AGI under $75,000
4. Minnesota — Taxed at the state rate; partial exemption available for lower incomes
5. Missouri — Exempt if income under $85,000 (single) / $100,000 (married)
6. Montana — Partially taxed; lower incomes receive a partial deduction
7. Nebraska — Moving toward full exemption; partially exempt for 2026
8. New Mexico — Exempt for lower incomes; partial tax for higher-income retirees
9. Rhode Island — Exempt if under certain income thresholds
10. Utah — Tax credit available; lower-income retirees often pay little or no state SS tax
11. Vermont — Exempt for lower incomes; taxed at higher income levels

Update: West Virginia fully eliminated its Social Security tax starting January 1, 2026, after a 3-year phase-out. It is no longer on this list. Source: WV Tax Division If your state isn't on this list, Social Security benefits are not taxed at the state level. Verify at your state's revenue department or the Social Security Administration website.

How Social Security Is Taxed at the Federal Level

Even if you live in a state that doesn't tax Social Security, Uncle Sam still might. Federal taxation of Social Security depends on your "combined income" — defined by the IRS as your adjusted gross income (AGI) + nontaxable interest + half of your Social Security benefits. These thresholds have not been adjusted for inflation since they were set in 1984 and 1993 — which means more retirees are pushed into the taxable range each year. A married couple receiving $30,000 in Social Security plus $20,000 from a pension or IRA has a combined income of $47,000, putting up to 85% of their SS benefits in the taxable zone. Key takeaway: Even in a tax-free state, managing your combined income through strategies like Roth conversions, annuity income timing, or careful IRA withdrawal planning can reduce or eliminate federal taxation of your Social Security. Source: SSA Benefits Planner | IRS: 2026 Filing Resources for Seniors

The Full Picture: Property Taxes, Sales Taxes, and Estate Taxes

Income tax is only part of the equation. A state with no income tax may still have high property or sales taxes that eat into your savings — especially if you own a home.

Property Taxes by State — What Retirees Should Know

On a $300,000 home, a 2% property tax rate costs $6,000/year — potentially wiping out the savings from no state income tax. Many states offer senior property tax relief programs: homestead exemptions, assessment freezes, or tax deferrals for residents over 65. Check AARP's Property Tax-Aide Calculator for state-specific programs.

Sales Tax Rates in No-Income-Tax States

Source: Tax Foundation — 2026 State Tax Data Washington and Tennessee have among the highest combined sales tax rates in the country despite having no income tax. For retirees who spend heavily on goods and services (vs. housing), this can meaningfully offset income tax savings.

States with No Estate or Inheritance Tax

Estate and inheritance taxes can affect how much wealth you pass to heirs. While the 2026 federal estate tax exemption is $15 million per individual, some states impose their own estate or inheritance taxes at much lower thresholds. States with estate taxes (lower thresholds than federal): Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, D.C. States with inheritance taxes: Iowa (phasing out by 2025), Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania States with BOTH estate and inheritance taxes: Maryland Among the 9 no-income-tax states, only Washington has an estate tax (threshold: $2.193 million). The other 8 have no estate or inheritance tax. If estate planning is a priority, this is worth considering alongside income tax savings.

How State Taxes Affect Your Annuity Income

If you own a multi-year guaranteed annuity (MYGA), fixed index annuity, or receive income from a single premium immediate annuity (SPIA), your state of residence determines whether those distributions are taxed at the state level. How annuity income is taxed by state:

• In the 9 no-income-tax states: annuity distributions are fully state-tax-free
• In Illinois, Iowa (55+), Michigan (up to exemption limit), Mississippi, Pennsylvania: annuity income from qualified retirement plans is typically exempt
• In all other states: ordinary income tax rates apply to the taxable portion of your annuity distribution (gains, not original premium on non-qualified annuities)

Example: Carol, age 67, receives $18,000/year from a MYGA she purchased with after-tax money. $11,000 is return of principal (tax-free); $7,000 is interest gain (taxable). If Carol lives in Florida — $0 state tax on that $7,000. If Carol lives in a state with a 5% income tax rate, she owes $350/year in state taxes on that distribution. Tax-deferred advantage: Annuities inside an IRA or 401(k) follow the same rules as other qualified plan withdrawals. But non-qualified annuities (purchased with after-tax dollars) have a unique advantage — the exclusion ratio means a portion of each payment is treated as a tax-free return of premium, further reducing your taxable amount. This makes annuities particularly tax-efficient in states with partial retirement income exemptions. For a personalized picture of how much an annuity could pay you after state taxes, request a free quote from our team — we compare rates across 30+ A-rated carriers and can factor in your state's tax rules. See our in-depth guide to current MYGA rates by term and our comparison of fixed annuities vs. CDs for after-tax return calculations.

Complete 2026 State-by-State Retirement Tax Reference

Use this table to quickly compare how all 50 states treat the four main types of retirement income. Scroll right on mobile. Green rows = most tax-friendly for retirees. "Partial" = exemption with income limits or caps. Data as of January 2026. Verify with your state's revenue department for the most current rules. Sources: Tax Foundation, NCSL, Kiplinger

Is Moving to a Tax-Friendly State Worth It?

For many retirees, yes — but the math depends on your income level and the specific taxes in your current vs. target state. Rough annual tax savings by moving from a high-tax state to a no-income-tax state: Note: These are illustrative estimates using flat rates. Actual liability depends on deductions, filing status, and each state's specific tax brackets and exemptions. Consult a tax advisor for your personal situation. Over a 20-year retirement, those savings compound significantly: A retiree with $100,000/year in income moving from an 8%-tax state to Florida saves roughly $160,000 in state taxes over two decades — money that stays invested, earning returns. Beyond income taxes, evaluate: property taxes (Texas is high despite no income tax), sales taxes (Tennessee and Washington have among the highest combined rates), cost of living, healthcare access and Medicare Advantage plan availability, and proximity to family. Tax savings matter — but they're one factor in a larger relocation decision.

What to Know Before Relocating for Tax Purposes

If you're seriously considering a move, keep these points in mind:

• Establish domicile clearly. States have sophisticated residency rules. Spending 6+ months in a new state, updating your driver's license, registering to vote, and filing a Declaration of Domicile are important steps to prove you've truly relocated. Some high-tax states (New York, California, New Jersey) are particularly aggressive about auditing residents who claim to have moved. NCSL: State Taxation of Retirement Income
• Your pension may have a "source state" rule. Federal law (P.L. 104-95) generally prohibits states from taxing retirement income of non-residents. But if you haven't fully established domicile in your new state, your former state may challenge you. Work 30 years in California, move to Nevada — make sure California considers you gone.
• Federal taxes follow you everywhere. No state tax doesn't mean no tax. Federal rates on ordinary income range from 10%–37% depending on your taxable income. For 2026, the standard deduction is $32,200 (MFJ), and seniors 65+ get the additional $6,000 deduction.
• Estate planning may change. If you move to a state with an estate tax (like Washington, Oregon, or Massachusetts), that affects your estate plan. Conversely, moving FROM a state with an estate tax could save your heirs significantly. Consult your attorney when relocating.
• Healthcare costs vary. Medicare covers the same services everywhere, but Medicare Advantage plans, Medigap premiums, and prescription drug costs vary by state and county. A state with low taxes but limited healthcare access could cost more in the long run.

For personalized guidance, speak with a fee-only financial advisor or CPA who specializes in retirement tax planning. Our team can also help you understand how annuity income would be taxed in your specific state — schedule a free 15-minute consultation.

Frequently Asked Questions

Which states have no state income tax for retirees in 2026?

Nine states impose no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. In all nine, retirement income including pensions, Social Security, IRA withdrawals, and annuity distributions is free from state income tax.

What changed for Michigan retirees in 2026?

Michigan completed the phase-out of its retirement income tax under Public Act 4 of 2023. Starting with tax year 2026, most pensions, 401(k)/IRA distributions, and other qualifying retirement income are exempt up to $67,610 (single filers) or $135,220 (joint filers). This applies to all retirees regardless of birth year — a significant change that saves Michigan retirees an average of $1,000 per year. Source: Michigan Treasury

Did West Virginia stop taxing Social Security in 2026?

Yes. West Virginia fully eliminated its state income tax on Social Security benefits effective January 1, 2026. This completed a three-year phase-out (35% reduction in 2024, 65% in 2025, 100% in 2026). The exemption applies to all Social Security recipients regardless of income level, benefiting nearly 500,000 West Virginians. Source: WV Tax Division

Do states that don't tax pensions also not tax Social Security?

Not necessarily. The rules are separate. Alabama, for example, exempts pension income but does have a general income tax. States with no income tax at all (Florida, Texas, etc.) automatically exempt both. For states with specific retirement exemptions, always check each income type separately.

How many states don't tax Social Security benefits?

As of 2026, approximately 42 states do not tax Social Security benefits at the state level — up from 41 in 2025 after West Virginia fully eliminated its SS tax. The 11 states that still tax Social Security are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont — though most offer income-based exemptions that shield lower-income retirees. See the SSA's official guide.

Does moving to a no-tax state save money if I have annuity income?

Yes — if your annuity generates $20,000–$30,000/year in taxable distributions, moving from a 5% income-tax state to a no-income-tax state saves $1,000–$1,500/year in state taxes on that income alone. Over a 20-year retirement, that's $20,000–$30,000 in savings. See our guide to how annuity income is taxed for a detailed breakdown of non-qualified vs. qualified annuity taxation.

Are IRA and 401(k) withdrawals taxed differently from pensions in these states?

Yes, in some states. Illinois, Iowa, Mississippi, and Pennsylvania generally exempt retirement distributions from qualified plans (including IRAs, 401(k)s, and employer pensions), but the specific rules vary. Pennsylvania, for example, exempts IRA distributions after age 59½ but taxes early withdrawals. Michigan's new 2026 exemption covers both pensions and IRA/401(k) distributions up to the annual cap. Check your state's revenue department or consult a tax professional.

What is the most tax-friendly state for retirees overall?

Florida and Wyoming are consistently ranked at the top by organizations like SmartAsset and Kiplinger. Both have zero state income tax, no estate or inheritance tax, and reasonable sales tax rates. Florida adds warm weather and robust retirement infrastructure; Wyoming offers a very low cost of living. Alaska is also exceptional on taxes (no income or state sales tax, plus the Permanent Fund Dividend) but its remote location and climate limit its appeal.

How much of my Social Security can be taxed at the federal level?

Up to 85% of your Social Security benefits can be taxed at the federal level, depending on your "combined income" (AGI + nontaxable interest + 50% of SS benefits). For single filers with combined income under $25,000 or married filers under $32,000, no federal tax applies to Social Security. Between $25,000–$34,000 (single) or $32,000–$44,000 (married), up to 50% is taxable. Above those thresholds, up to 85% is taxable. These thresholds have not been adjusted for inflation since 1984. Source: SSA Benefits Planner

Do Thrift Savings Plan (TSP) withdrawals get taxed the same as 401(k)s?

In most states, yes — TSP distributions are treated identically to 401(k) withdrawals for state income tax purposes. The same 14 states that exempt 401(k)/IRA income generally exempt TSP income as well. However, some states have specific exemptions for federal employee pensions that may provide additional benefits. If you're a federal employee or military retiree, check both the general retirement income rules and any federal/military-specific exemptions in your state.