Where Retirees Can Avoid Paying State Taxes on Their Retirement Income

Forty-two states don't tax Social Security benefits, giving many retirees a break on at least one major source of income.

Some states also exempt pension income, retirement account withdrawals, or military retirement pay from state taxes.

Nine states have no broad individual income tax, though retirees may still face property, sales, or other state and local taxes.

After a lifetime of contributing to Social Security, building up a retirement plan, or earning a pension, you may be bracing for a big tax hit in retirement. But state taxes vary widely, and many retirees get a break: 42 states don't tax Social Security income, 37 don't tax most military retirement pay, and 16 exempt pension income from state taxes.

Nine states go even further by not imposing a broad individual income tax at all. That can make a meaningful difference in how much retirement income you get to keep, though property, sales, and other taxes still matter when deciding where to live.

6 States Offer Retirement-Income Tax Breaks

These six states generally impose an individual income tax but exempt Social Security, pension income, retirement account withdrawals, or some combination of the three.

Arkansas offers retirees a break by exempting up to $6,000 per year from public and private employer-sponsored pension plans and traditional IRA distributions received after the age of 59½ or because of death or disability. It also doesn't tax Social Security income or military retirement pay at all. Plus, Arkansas imposes no estate or inheritance tax, so your heirs won't face additional tax burdens.

Illinois exempts pension income, 401(k) and IRA withdrawals, Social Security benefits , and military retirement pay from state taxes. However, Illinois does tax other investment earnings. The state also has estate and inheritance taxes.

Iowa changed its tax laws in January 2023 to become more retiree-friendly . As a result, the state no longer taxes pension, annuity, or IRA income for residents over age 55.

On January 1, 2025, the state more broadly transitioned to a flat tax system with a rate of 3.8%. It also eliminated its inheritance tax.

Mississippi spares retirement plan distributions, pension income , annuities, Social Security income, and military retirement pay from state taxes. Early distributions from retirement plans generally don't qualify for exempt status. This state doesn't have an estate or inheritance tax , either.

Retirees in Pennsylvania benefit from a lack of state taxes on Social Security, pension income, and retirement plan distributions. However, Pennsylvania has a flat income tax rate .