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12 States That Won't Tax Your Retirement Income

Rocky Mengle, Tax Editor

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You've worked hard all your life, and now you're retired (or will soon retire). Unfortunately, there's a pretty good chance that Uncle Sam is going to take a cut of your 401(k), traditional IRA or pension income. But what about your state? Will it take a bite out of your retirement income, too?

Most states tax at least a portion of retirement income (not counting Social Security benefits). Your state might offer some tax breaks, but those breaks usually have limitations based on your age and/or income. Twelve states, however, completely exempt the most common types of retirement income--401(k)s, IRAs and pensions--from taxation. That's a huge plus for retirees living in those states. Take a look at the list.


SEE ALSO: How All 50 States Tax Retirees

Alaska

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Retirement Income: Alaska usually isn't the first place that comes to mind when you think about places to retire. But if you live there, none of your 401(k), IRA or pension income will be taxed. That's because the Last Frontier doesn't have an income tax. Yeah, it can be cold, but the Alaska tax code is pretty good to the state's senior citizens.

Social Security Benefits: Like most states, Alaska does not tax Social Security benefits.

Income Tax Range: Not applicable (no income tax).

Inheritance and Estate Taxes: Alaska doesn't have an inheritance tax or an estate tax.

For more information about Alaska's overall state tax burden on retirees, see the complete guide to taxes on retirees in Alaska.

SEE ALSO: Retirement Mistakes You Will Regret Forever

Florida

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Retirement Income: Sunshine, palm trees, sandy beaches ... what more could you want in a retirement destination? How about no taxes on your 401(k), IRA or pension income? That's what you get in Florida, because the Sunshine State doesn't have an income tax.

Social Security Benefits: Florida doesn't tax Social Security benefits, either.

Income Tax Range: Not applicable (no income tax).

Inheritance and Estate Taxes: There are no inheritance or estate taxes in Florida.

For more information about Florida's overall state tax burden on retirees, see the complete guide to taxes on retirees in Florida.

SEE ALSO: 10 Things You Must Know About Retiring to Florida

Illinois

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Retirement Income: Midwesterners looking for a tax-smart place to retire should check out Illinois. It's the only state in the region that completely exempts 401(k), IRA and pension income from tax. Pension and 401(k) income must be from a qualified employee benefit plan to be tax-free, though.

Social Security Benefits: The Prairie State doesn't tax Social Security benefits, either.

Income Tax Range: The Illinois income tax rate is a relatively low, flat 4.95%.

Inheritance and Estate Taxes: Illinois has an estate tax for estates worth more than $4 million.

For more information about Illinois' overall state tax burden on retirees, see the complete guide to taxes on retirees in Illinois.

SEE ALSO: 9 States With the Scariest Death Taxes

Mississippi

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Retirement Income: If you're at least 59½ years old, the Magnolia State won't tax your retirement income. However, the state will take its share of 401(k), IRA or pension income received by those who retire early.

Social Security Benefits: Mississippi won't tax your Social Security benefits.

Income Tax Range: For the 2018 tax year, Mississippi's lowest tax rate is 3% (on taxable income of $1,000 or more), and its top rate is 5% (on taxable income of more than $10,000). (Note: The 3% rate is gradually being phased out. Starting in 2022 , the lowest rate will be 4%, which will be applied to taxable income from $5,001 to $10,000.)

Inheritance and Estate Taxes: Don't worry about inheritance or estate taxes if you live in Mississippi. The state doesn't impose those taxes.

For more information about Mississippi's overall state tax burden on retirees, see the complete guide to taxes on retirees in Mississippi.

SEE ALSO: Claim These Tax Deductions Even If You Don't Itemize

Nevada

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Retirement Income: Why gamble with your finances in your golden years? Move to Nevada, where the state won't tax your 401(k), IRA or pension income--or any of your other income, for that matter, because it doesn't have an income tax.

Social Security Benefits: Your Social Security check is tax-free in Nevada, too. So, you'll have more cash for the poker and blackjack tables ... if that's your sort of thing.

Income Tax Range: Not applicable (no income tax).

Inheritance and Estate Taxes: Nope--those taxes don't exist in Nevada.

For more information about Nevada's overall state tax burden on retirees, see the complete guide to taxes on retirees in Nevada.

SEE ALSO: The Least Tax-Friendly States in the U.S. 2018

New Hampshire

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Retirement Income: The Granite State is the only state in New England without a general income tax. Instead, the state imposes a tax on interest and dividends. With no broad income tax, you can completely avoid state tax on payments from your 401(k) plan, IRA or pension if you retire to New Hampshire.

Social Security Benefits: New Hampshire doesn't tax your Social Security benefits, either.

Income Tax Range: A flat 5% tax on interest and dividends only.

Inheritance and Estate Taxes: New Hampshire doesn't collect inheritance or estate taxes.

For more information about New Hampshire's overall state tax burden on retirees, see the complete guide to taxes on retirees in New Hampshire.

SEE ALSO: 10 Scams That Will Ruin Your Retirement

Pennsylvania

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Retirement Income: Retirees can save a lot on taxes in Pennsylvania. The Keystone State doesn't tax pension income you receive from an eligible employer-sponsored retirement plan (except if you retire early). Payments from a 401(k) plan or IRA after retiring also avoid state taxation (again, except in early retirement).

Social Security Benefits: Social Security benefits aren't taxed by Pennsylvania.

Income Tax Range: Pennsylvania has a low, flat income tax rate of 3.07%. However, municipalities can tax earned income, too.

Inheritance and Estate Taxes: Pennsylvania does have an inheritance tax that ranges from 4.5 to 15%, depending on a recipient's relationship to the deceased and their age.

For more information about Pennsylvania's overall state tax burden on retirees, see the complete guide to taxes on retirees in Pennsylvania.

SEE ALSO: 15 Things Retirees Should Buy at Costco

South Dakota


Retirement Income: South Dakota is one of the most tax-friendly states for retirees. With no income tax and no tax on 401(k), IRA or pension income, the state belongs on the Mount Rushmore of low-tax abodes.

Social Security Benefits: There's also no South Dakota tax on Social Security benefits.

Income Tax Range: Not applicable (no income tax).

Inheritance and Estate Taxes: Like most states, South Dakota doesn't impose an inheritance or estate tax.

For more information about South Dakota's overall state tax burden on retirees, see the complete guide to taxes on retirees in South Dakota.

SEE ALSO: 50 Best Places to Retire in the U.S.

Tennessee

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Retirement Income: Tennessee's income tax is very limited; it only covers interest and dividends. As a result, retirees in the Volunteer State don't pay tax on their 401(k), IRA or pension income.

Social Security Benefits: Tennessee retirees also collect Social Security benefits without paying state tax on them.

Income Tax Range: For 2018, there's a flat 3% tax on interest and dividends only. The rate goes down to 2% in 2019, 1% in 2020, and 0% in 2021 and later. Plus, all of your income is exempt from tax if you or your spouse (for joint returns) is at least 100 years old.

Inheritance and Estate Taxes: Tennessee doesn't have an inheritance or estate tax.

For more information about Tennessee's overall state tax burden on retirees, see the complete guide to taxes on retirees in Tennessee.

SEE ALSO: 10 Strangest Ways States Tax You (And Don't)

Texas

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Retirement Income: Don't mess with Texas ... and Texas won't mess with your retirement income. Because the Lone Star State doesn't have a personal income tax, it will keep its hands off your 401(k), IRA and pension income, too.

Social Security Benefits: Of course, because there's no income tax, there's no tax on your Social Security benefits in Texas, either. So feel free to spend some of that money on a nice pair of cowboy boots or some Texas barbeque instead of state taxes.

Income Tax Range: Not applicable (no income tax).

Inheritance and Estate Taxes: There are no inheritance or estate taxes in Texas.

For more information about Texas' overall state tax burden on retirees, see the complete guide to taxes on retirees in Texas.

QUIZ: Tax Deductions: Can You Tell If These Are Legit?

Washington

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Retirement Income: If you like a good cup of coffee, consider retiring in Washington State. If you're not sold on the coffee, maybe you'll think again when you learn that the Evergreen State doesn't have an income tax. That means none of your 401(k), IRA or pension income is going to take a state tax hit.

Social Security Benefits: Social Security benefits escape taxes in Washington, too.

Income Tax Range: Not applicable (no income tax).

Inheritance and Estate Taxes: Well, no state is perfect. Washington taxes estates with a value of at least $2,193,000. The state doesn't have an inheritance tax, though. For more information about Washington's overall state tax burden on retirees, see the complete guide to taxes on retirees in Washington.

SEE ALSO: Tax Breaks and Deductions You Won't Believe Are Real

Wyoming

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Retirement Income: Wyoming is very taxpayer-friendly when it comes your retirement income--no taxes on payments from 401(k) plans, IRAs or pensions. Why? The Cowboy State doesn't have an income tax.

Social Security Benefits: Wyoming won't take a share of your Social Security check, either.

Income Tax Range: Not applicable (no income tax).

Inheritance and Estate Taxes: Don't worry about them. Wyoming doesn't impose an inheritance or estate tax.

For more information about Wyoming's overall state tax burden on retirees, see the complete guide to taxes on retirees in Wyoming.

SEE ALSO: 37 States That Don't Tax Social Security Benefits

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