Retirement Retirement Planning

13 States Where Retirees Pay No State Tax on 401(k) or IRA Withdrawals in 2026

You might want to consider moving in retirement.

By Catherine Collins , Edited by Laura Hohenstein

Updated Sept. 28, 2026

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Some people believe that paying taxes is a fact of life, but in a few parts of the country, retirees may get a break when it comes to certain types of taxes on retirement withdrawals. In addition to the nine states that don't charge individual income taxes, there are several other states that don't have taxes on retirement withdrawals as long as retirees meet certain qualifications.

Here's what you need to know if you're a retiree who wants to optimize your retirement plan withdrawals by moving to one of these locations.

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9 states have no income tax at all

Many retirees consider moving to one of the nine states that have no income tax at all. These states include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, before packing your bags, retirees should run all the numbers. Just because a state has no individual income tax doesn't necessarily mean that it's more affordable to live there overall. These states may have higher property taxes and sales taxes as well as more expensive housing overall.

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Illinois doesn't tax you on 401(k) or IRA withdrawals

Illinois might not seem like the most tax-friendly state because some parts of it have a high cost of living. However, the state has one of the most tax-friendly policies when it comes to retirement income. Although you may have to pay federal income tax when you make a withdrawal from a retirement account, you won't have to pay Illinois income tax on it. This is not limited to retirees above a certain age either. If you make an early distribution from a retirement plan, you can still subtract it from your total taxable income.

Iowa exempts retirement withdrawals at age 55

Iowa is another state that offers tax breaks on retirement withdrawals, but only once you turn 55. That means that you can't get a tax break on any early withdrawals you make while working. If you do make a withdrawal from a retirement account at age 55, you may still have to pay a 10% early withdrawal penalty for taking out retirement money prior to turning age 59 and a half. Those who are disabled or a surviving spouse may also qualify for this retirement income exclusion.

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Mississippi exempts some retirement withdrawals

Mississippi offers tax breaks on retirement income as well, but you have to meet your plan's requirements. For example, if you take an early distribution, that would not be considered retirement income, and you'd have to pay income taxes on it. In addition to this perk, Mississippi is also one of the most affordable states to live in and one of the cheapest places to buy a home. Retirees who live in more expensive states may be able to increase their available cash by downsizing and moving to the South.

Pennsylvania exempts some retirement withdrawals

Similar to Mississippi, Pennsylvania also doesn't tax retirement plan withdrawals as long as you've met the plan rules. So, for most retirees, that means turning 59 and a half in order to receive a tax break. Withdrawing money from your retirement plans any earlier than 59 and a half means you'll likely have to pay both federal and state taxes on what you take out. However, there are some exceptions, such as those who are disabled.

You may still have to pay other taxes if you move

Keep in mind that even if you move to one of the states mentioned above, you may still have to pay other types of taxes. These include federal income tax, estate taxes, inheritance taxes, sales tax, and property taxes. Though some states offer breaks on certain types of taxes, they may have higher taxes in other areas. That's why it's important to consider the entire financial picture of a location before moving.

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Retirees still need to consider these other expenses

If you decide to move to another state in retirement, keep in mind that moving can cost thousands of dollars. Additionally, some parts of the country may have higher utility prices, grocery prices, and gas prices. Also consider any additional costs that may arise from moving away from family. Sometimes retirees move to save but find themselves flying back to their previous location, which can get expensive. Finally, consider proximity to healthcare facilities. As retirees age, healthcare spending typically goes up, and living close to hospitals may become more important.

Bottom line

One of the financial mistakes many retirees make is living in states that don't provide tax benefits on retirement withdrawals. Retirees face many expenses. Depending on their location, they may have housing expenses, property taxes, additional health expenses, and more. Because of that, getting a break on state income taxes can go a long way in helping retirees increase their cash flow.

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