13 States That Won't Tax Your 401(k) in 2026

Whenever people talk about taxes, they're usually referring to federal income taxes. However, state income taxes are just as important, especially when it comes to your retirement plan.

Some states don't tax residents on 401(k) withdrawals, which can help retirees improve their monthly cash flow and make their nest egg last longer. Moving to one of these states, though, requires thought and planning. However, it may be worth it for those who want to set themselves up for retirement.

State taxes vs federal taxes

Everyone will pay federal income taxes on their traditional 401(k) withdrawals regardless of where they live. However, each state gets to decide whether to impose a state income tax on retirement income.

If you're open to moving to a different location in retirement, finding out which states offer benefits to retirees can be very helpful in maximizing the money you have to live on in retirement.

Why state taxes matter for retirement

State taxes matter for retirement because most retirees live on a fixed income and want their retirement investments to last. The less money they have to pay towards taxes, the more they can keep to pay for other expenses.

Some states are more affordable to live in because of a low cost of living and low property taxes, while others are simply more affordable because they don't charge income tax.

States with no income tax

Currently, nine states don't charge personal income tax. Residents of those states must pay federal income taxes, but they won't have to pay state income taxes on top of that. That means you won't have to pay state taxes on your income from your 401(k)s, pensions, and Social Security income.

The nine states that don't charge state income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. These states are located across the country, so if you're looking to move to one, chances are that if you don't live in one already, there is probably one nearby.

States that exempt retirement income

While nine states don't have a state income tax at all, a few other states tax residents' income but exempt retirement income.

That means that if you work a typical job during your career, you will pay income taxes. However, once you start living off of your retirement income, you will not have to pay taxes on that particular type of income. These states are Illinois, Mississippi, and Pennsylvania.

States that exempt some retirement contributions

Finally, another state, Iowa, allows retirees to withdraw retirement income tax-free, but you must meet specific age requirements.

Iowa exempts retirement income from taxes, but only when you turn 55 or meet another type of criteria, such as being disabled or being the surviving spouse of someone who had access to a pension.

For most people, the 55 age requirement is not an issue, as many are still working at that age.

Trade-offs with no income tax

Although some states don't charge personal income tax, there are usually trade-offs worth noting. After all, these states have to generate revenue in other ways, and that usually comes from having higher sales taxes and property taxes.

For that reason, it's important not to choose a state to live in solely based on income tax laws. Instead, research the cost of living in the area, the amenities, the sales taxes, and the property taxes before choosing a location.

What to do before relocating

Before you relocate during your retirement years, there are a few things to consider. First, consult a tax professional in the state you want to move to. There may be specific residency requirements you have to meet in order to time your retirement withdrawals for maximum benefit.

Also, speak with a real estate agent to understand the average home prices in the area you want to live in. See what property taxes might be and consider utility expenses. Think about the type of life you want to have in retirement. If you like traveling, seek out a location that is near an airport. If you have health issues, find an area near a well-regarded medical system.

Ultimately, the best place to live in retirement will be different for everyone, but taking time to research and plan can help you find the ideal place.

Bottom line

The state you call home can actually impact how much money you have at retirement. By living in a state without state income taxes or with no taxes on retirement income, you can have better cash flow in your later years, allowing you to retire comfortably.

The balance, though, is understanding other expenses, such as property taxes and living costs. Doing your research ahead of time can help you find the ideal place to live that will help your retirement income stretch the farthest.

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