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15 States That Don’t Tax Pension Income

Retirement income from defined benefit plans catches a break in these states

spinner image view of man driving open top convertible car towards an unknown destination - the words NO TAX  are superimposed in the sky

Retirement income comes in all forms, and pension payouts are just one of them. To the federal government, most pension payouts are fully taxable as income. To the 50 states and the District of Columbia, however, the tax picture for pension payouts is a bit more complicated.

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A patchwork of tax rules

Eight states —Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — don’t tax income at all. New Hampshire taxes only interest and dividend income. And six states — Alabama, Hawaii, Illinois, Iowa, Mississippi and Pennsylvania — exclude pension income from state taxes.

spinner image states that do not tax pension distributions are new hampshire pennsylvania tennessee mississippi alabama florida south dakota illinios iowa texas wyoming nevada washington state alaska and hawaii

If you don’t live in one of those 15 states, you may still avoid paying taxes on all or some of your pension. According to Wolters Kluwer, a tax publishing company, 26 states tax some, but not all, retirement or pension income. Often these states tax pension income only above a certain level of adjusted gross income. For example, Connecticut exempts pension income from state income taxes for single filers with a federal adjusted gross income of less than $75,000. The number is $100,000 for married couples filing jointly.

Others exclude some pension income from state taxes. New York, for example, exempts $20,000 in pension income from state taxes, and excludes government pension income (including Social Security benefits) as well.

Pensions pay out a defined amount each month until an employee dies, which is why they are called defined benefit plans. Your payout typically depends on your salary over time and how long you worked at the company. Pensions are becoming increasingly rare among private employers, however: Only 11 percent of workers at private companies participated in a pension plan in 2023.

Increasingly, Americans have had to rely on defined contribution plans, such as 401(k) plans, for retirement income. The payout from these plans depends on how much you (and often your employer) contributed, as well as the plan’s investment returns. In most defined contribution plans — except Roth IRAs and Roth 401(k)s — distributions are taxed as ordinary income by the federal government. But state taxation varies. Of the 15 states that won’t tax your pension, two — Alabama and Hawaii — will tax at least part of the income from defined contribution plans, such as 401(k)s.

Finally, there’s Social Security income. The federal government can tax some Social Security benefits, depending on your income. You’ll be taxed on:

  • Up to 50 percent of your benefits if your income is $25,000 to $34,000 for an individual or $32,000 to $44,000 for a married couple filing jointly.
  • Up to 85 percent of your benefits if your income is more than $34,000 (individual) or $44,000 (couple). And 12 states — Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont and West Virginia — can tax all or part of your Social Security benefits.
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Taxes aren’t everything

States need money to pay for roads, services and education, and if they don’t tax retirement benefits, they will find the money elsewhere — typically in property or sales taxes. And there are other considerations too. The Tax Foundation, a nonpartisan think tank, rates Alaska as one of the most tax-friendly states to live in. Your decision to move to Alaska should also take into account your fondness for cold winters and bears.​

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