15 Retirement-Friendly States That Won't Tax Your Pension

Retirement is a time to relax and enjoy the wealth you’ve worked so hard to build. However, where you live can impact how much pension income you actually keep.

Some states don’t tax pensions, making them especially attractive for retirees looking to stretch their dollars. By retiring in one of these states, you make a money move that helps you avoid unnecessary taxes.

Here are 15 retirement-friendly states that exempt pensions from taxation, and that offer other perks that make them worth considering.

Alabama exempts private pensions from state income tax if the income comes from a defined benefit retirement plan, which is a retirement plan with a fixed and predetermined benefit amount. It also exempts government pensions from state income tax.

Additionally, Social Security benefits are also tax-free. With a low overall cost of living, Alabama offers retirees a budget-friendly lifestyle. The state’s mild winters and Southern charm make it an attractive destination.

Alaska doesn’t tax pensions or any other income because it has no state income tax. Residents even receive annual payments from the Alaska Permanent Fund, which shares the state’s oil revenue.

Combine that with scenic landscapes, and Alaska is a unique haven for retirees. Outdoor enthusiasts will appreciate the endless recreational opportunities available year-round.

Florida exempts all pension income from taxation and doesn’t impose a state income tax. With no estate or inheritance tax, it’s a popular choice for retirees looking to keep more of their retirement savings.

The abundance of retirement communities and health care facilities further enhances Florida’s appeal.

Hawaii exempts certain pension income, such as distributions from private and public employer-sponsored plans where you didn’t make contributions to the plan. Social Security benefits are also tax-free.

However, it’s important to be aware that employee-contribution retirement plans are partially taxable. Once you start taking distributions, you’ll have to pay income tax on the value increase from contributions.

Illinois doesn’t tax pension income, nor does it tax retirement income from 401(k)s, IRAs, and Social Security.

The state also offers senior-specific tax relief programs, such as property tax deferrals. That makes it a good choice for retirees seeking affordability in the Midwest. Major cities such as Chicago also offer both urban conveniences and cultural attractions.

Iowa exempts pension income from state tax and recently began reducing taxes on other income as well. Eventually, Iowa will have just one flat tax of 3.9%.

The state also has a relatively low cost of living, giving retirees more financial breathing room. Iowa’s tranquil countryside and friendly communities provide a peaceful retirement setting.

Mississippi doesn’t tax most pension income. It also does not tax retirement account withdrawals, making it a top choice for retirees.

Property taxes are also low, adding another layer of savings for those on a fixed income. The state’s warm climate and Southern hospitality create a welcoming environment for retirees.

Nevada’s lack of an income tax means pensions are entirely tax-free. Retirees can also benefit from the state’s low property tax rates and affordable housing options in many areas.

Plus, the entertainment options in cities such as Las Vegas keep things lively. Nevada’s dry climate and stunning desert landscapes are additional perks for retirees seeking unique surroundings.

New Hampshire does not tax pensions and does not have a general income tax. While it currently taxes dividends and interest income, that rule will be repealed in 2025.

Another bonus: The state doesn’t charge a general sales tax, making everyday purchases more affordable. New Hampshire’s picturesque landscapes and small-town charm make it a favorite for retirees.

Pennsylvania exempts all pension income from state taxation, along with Social Security benefits. The Keystone State also has a relatively low flat income tax rate of 3.07% and offers property tax relief for seniors.

The state’s mix of historical attractions and natural beauty provides plenty of recreational opportunities.

South Dakota has no state income tax, which means pensions are tax-free.

The state also ranks high for affordability and quality of life, making it a peaceful option for retirees who enjoy the great outdoors. South Dakota’s small towns and sense of community make it an appealing place.

Tennessee doesn’t tax pensions or other retirement income because it has no state income tax.

Additionally, the state’s low cost of living makes it a budget-friendly choice for retirees looking to stretch their savings. Music lovers will enjoy the vibrant cultural scenes in cities such as Nashville and Memphis.

Texas doesn’t tax pensions, thanks to its lack of a state income tax. Also, retirees can benefit from no estate tax and a relatively low cost of living.

The state’s diverse landscapes and bustling cities offer something for everyone.

Washington exempts pensions from taxation thanks to its lack of a state income tax.

While the cost of living can be relatively high in some areas of the state, retirees can take advantage of beautiful natural scenery and a moderate climate. The state’s access to high-quality health care is another draw for retirees.

Wyoming doesn’t tax pensions or other forms of income and also boasts one of the lowest property tax rates in the country at 0.55%.

With its wide-open spaces and small-town charm, Wyoming is an ideal destination for retirees seeking tranquility. The state’s outdoor activities, like hiking and fishing, make it a haven for nature enthusiasts.

Retiring in a state that doesn’t tax pensions can make a significant difference to your financial security. From Florida’s sunny tax benefits to Wyoming’s serene landscapes, these states help you build wealth while enjoying your golden years.

So, check up on your retirement readiness by deciding which state helps you maximize savings.