income tax
Published on 23 July 2025
Maximize Tax Savings: Income Tax Benefits for Senior Citizens in India
Where You Retire Matters: 2025 Guide to States That Don’t Tax Retirement Income
Retirement may mean the end of long workdays, but it’s far from the end of your relationship with taxes. In fact, where you choose to spend your golden years can have a major impact on how much of your retirement nest egg stays in your pocket.
While federal taxes still apply to retirement income, the state you call home can either ease or compound that burden. Some states, fortunately, go easy—offering full exemptions on retirement income. Others still collect a slice, depending on the type and timing of your distributions.
As of 2025, 13 U.S. states offer particularly favorable tax treatment for retirees. Here's a clear breakdown of what they offer—and what you need to keep in mind before packing your bags.
States That Don’t Tax Retirement Income (2025)
The following 13 states either have no income tax at all, or they specifically exempt all retirement income—pensions, Social Security, 401(k)s, IRAs—from taxation.
| State | Retirement Income Tax Status | What You Should Know |
|---|---|---|
| Alaska | No state income tax | Tax-free retirement income, but local sales taxes can run high. |
| Florida | No tax on retirement | No state tax on pensions, withdrawals, or Social Security; food purchases are tax-free. |
| Illinois | Retirement income exempt | Flat tax of 4.95% exists, but retirement income (including pensions and IRAs) is fully exempt. |
| Iowa | Retirement income exempt (55+) | For residents 55 and older, all qualified retirement income is tax-free. |
| Mississippi | Retirement income exempt (conditions apply) | Social Security, pensions, and qualified distributions are exempt—if certain plan criteria are met. |
| Nevada | No income tax | Retirement income is untouched; however, sales taxes are among the nation’s highest. |
| New Hampshire | No income tax as of 2025 | State has phased out all income taxes, including on interest and dividends. |
| Pennsylvania | Retirement income exempt | Flat 3.07% income tax rate, but all qualified retirement distributions are fully excluded. Inheritance tax still applies. |
| South Dakota | No income tax | No tax on any type of income, including retirement, interest, or capital gains. |
| Tennessee | No income tax | Retirement distributions are tax-free; sales tax, however, is steep. |
| Texas | No income tax | No tax on retirement or any other income; offset by high property and sales taxes. |
| Washington | No income tax (except capital gains) | No tax on distributions, but gains above $250,000 face a 7% capital gains tax. |
| Wyoming | No income tax | Also among the lowest in property and sales taxes; no inheritance tax. |
Understanding the Fine Print
While these 13 states offer significant tax advantages for retirees, there are key details and caveats worth noting:
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Illinois, Iowa, Mississippi, Pennsylvania: These four do impose an income tax—but each fully exempts retirement income, including 401(k)s, IRAs, pensions, and Social Security, provided you're of qualifying age and meet plan requirements.
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New Hampshire: Starting 2025, the last remnants of income tax—on interest and dividends—are officially repealed, making all personal income streams tax-free.
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Washington: While there’s no traditional income tax, retirees with large portfolios should be aware of the state’s 7% tax on capital gains over $250,000—though retirement withdrawals remain exempt.
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Mississippi: Be cautious. While qualified retirement distributions are exempt, early or non-retirement withdrawals may still be taxed if plan rules aren’t followed.
But What About Sales and Property Taxes?
A tax-free retirement income doesn’t mean a tax-free retirement. Other state-level taxes can chip away at your budget in subtler ways:
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Sales Taxes: States like Nevada, Tennessee, Texas, and Washington levy some of the highest sales taxes in the country. If you're spending more during retirement, this can add up quickly.
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Property Taxes: Texas and New Hampshire, while income-tax friendly, have property taxes that rank among the highest nationwide. Make sure you factor this into your housing decisions.
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Inheritance Taxes: For retirees thinking about legacy planning, states like Pennsylvania still impose inheritance tax—even though they exempt retirement income itself.
States With No Income Tax—On Any Income
These nine states not only exempt retirement income—they impose no personal income tax at all:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
States That Exempt Retirement Income—But Still Have an Income Tax
These four states do have a state income tax, but fully or nearly fully exempt retirement income:
- Illinois
- Iowa
- Mississippi
- Pennsylvania
Federal Taxes Still Apply
Even in a state with no income tax, the IRS may still take a slice:
- Traditional IRA and 401(k) withdrawals are taxable federally as ordinary income.
- Social Security may also be taxed federally, depending on your total income and filing status.
Quick Summary: 2025 Retirement Tax Snapshot
| State | State Income Tax on Retirement | Social Security Taxed? | 401(k)/IRA/Pension Taxed? |
|---|---|---|---|
| Alaska | No | No | No |
| Florida | No | No | No |
| Illinois | No (retirement income exempt) | No | No |
| Iowa | No (age 55+ exemption) | No | No |
| Mississippi | No (if plan rules followed) | No | No |
| Nevada | No | No | No |
| New Hampshire | No | No | No |
| Pennsylvania | No (retirement income exempt) | No | No |
| South Dakota | No | No | No |
| Tennessee | No | No | No |
| Texas | No | No | No |
| Washington | No (except capital gains >$250K) | No | No |
| Wyoming | No | No | No |
Final Thoughts
When it comes to choosing a retirement-friendly state, income tax is only one piece of the puzzle. Cost of living, healthcare access, property tax, and even estate laws can all significantly impact your financial security over the long haul.