In case you’re contemplating relocating to a unique state whenever you retire, you may need to take into consideration how your earnings might be taxed within the state you intend to maneuver to.
State earnings taxes can vary as excessive as 13.3% – except you reside in a state that doesn’t tax retirement earnings. 😊
9 states impose no earnings tax in any respect.
If you’re a retiree, you’ll be able to transfer to any a type of states with out concern for the state earnings tax legal responsibility in your retirement earnings. Nevertheless, there are various different states that exempt earnings from particular retirement sources, like Social Safety, pensions, navy pensions, and distributions from outlined contribution retirement plans.
Learn Extra:
Desk of Contents
- 9 States That Don’t Acquire Revenue Tax
- 13 States That Don’t Tax Outlined Contribution Plan Distributions
- 15 States That Don’t Tax Pension Revenue
- 32 States That Don’t Tax Army Pensions
- 37 States That Don’t Tax Social Safety Revenue (Plus The District of Columbia)
- Is it Higher to Stay in a State that Doesn’t Tax Retirement Advantages?
9 States That Don’t Acquire Revenue Tax
9 states at the moment don’t have any earnings tax. Since they don’t tax earnings, that additionally means they don’t tax retirement earnings.
The 9 states with no earnings tax embrace:
- Down
- Florida
- New Hampshire*
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
* New Hampshire had a 3% earnings tax levied on curiosity and dividend earnings acquired in 2024. Nevertheless, this tax has been repealed beginning January 1st, 2025.
13 States That Don’t Tax Outlined Contribution Plan Distributions
As is the case with federal earnings taxmost states tax distributions from outlined contribution plans.
These embrace conventional, SEP, and SIMPLE IRAs; 401(ok), 403(b), 457, and Thrift Financial savings Plans (TSPs). Nevertheless, 13 states don’t impose tax on outlined contribution plan distributions. (Supply: Bankrate)
Included are the 9 “no earnings tax” states with no earnings tax, together with these 4 further states that don’t tax outlined contribution plan distributions:
- Illinois
- Iowa
- Mississippi
- Pennsylvania
What about Roth IRA distributions?
Typically talking, states observe the identical tax therapy with Roth IRA distributions because the IRS. However since every state has its personal tax code, you’ll have to test together with your tax preparer or tax software program program to find out if (and when) Roth IRA distributions could be taken tax-free.
* Word that in researching for this text, we couldn’t establish a single authoritative supply confirming conclusively that Roth IRA distributions could be taken tax-free in all 50 states and the District of Columbia.
15 States That Don’t Tax Pension Revenue
A complete of 15 states don’t tax pension earnings. Along with the 9 states with no earnings tax, six further states impose no earnings tax on pension earnings (often known as outlined profit retirement plans). (Supply: Kiplinger)
- Alabama
- Hawaii
- Illinois
- Iowa
- Mississippi
- Pennsylvania
32 States That Don’t Tax Army Pensions
A complete of 32 states don’t tax navy pensions. Along with the 9 states with no earnings tax, the next 23 states don’t tax navy pensions. (Supply: MyArmyBenefitsThe official navy advantages web site of the U.S. Military, Desk of 2021 State Taxes and Army Retired Pay):
- Alabama
- Arkansa
- Arizona
- Connecticut
- Hawaii
- Illinois
- Iowa
- Kansas
- Louisiana
- Maine
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Pennsylvania
- Utah
- West Virginia
- Wisconsin
The next 16 states present partial exemption from state earnings tax on navy pensions:
- Colorado
- Delaware
- Georgia
- Idaho
- Indiana
- Kentucky
- Maryland
- Missouri
- Montana
- Nebraska
- New Mexico
- Oklahola
- Oregon
- Rhode Island
- South Carolina
- Virginia
Solely three jurisdictions present no exemption for navy pensions:
- California
- The District of Columbia
- Vermont
37 States That Don’t Tax Social Safety Revenue (Plus The District of Columbia)
A complete of 37 states, plus the District of Columbia, exempt Social Safety advantages from taxation. That features the next 28 states and the 9 that impose no earnings tax. (Supply: The Tax Basis):
- Alabama
- Arizona
- Arkansa
- California
- Delaware
- District of Columbia
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- New Jersey
- New York
- North Carolina
- Ohio
- Oklahola
- Oregon
- Pennsylvania
- South Carolina
- Virginia
- Wisconsin
The remaining 13 states present partial tax exemption of Social Safety earnings, both primarily based on age or earnings degree or with another type of modification:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
Is it Higher to Stay in a State that Doesn’t Tax Retirement Advantages?
All issues being equal, retirees are financially higher off residing in states that don’t tax retirement advantages. However as everyone knows, all issues are seldom equal. So whereas state earnings taxes are an vital consideration, they shouldn’t be the one deciding issue on the place you must reside out your golden years.
It’s essential to additionally contemplate different kinds of taxes, comparable to gross sales and actual property taxes.
For instance, New Hampshire is without doubt one of the states with no earnings tax, however it has a few of the highest property taxes within the nation. In that case, the advantage of not paying earnings tax could also be offset by greater property taxes.
Housing costs are one other consideration. The state of Washington has no earnings tax, however the median value of a home is $552,000. The price of buying a house in Washington state may simply cancel out the advantage of tax-free retirement earnings.
Insurance coverage is one other issue. Florida has no earnings tax and is a well-liked vacation spot for retirees. However, the state additionally has the best automobile insurance coverage premiums within the nation, at an common of $2,694 per yrand the best common house owner’s insurance coverage premiums, at $10,996 per yr.
All of that is to say that whereas the earnings tax influence on retirement is vital, it’s only one piece of the puzzle. Dwelling in a state that doesn’t tax retirement earnings is a significant plus, however it may be offset by different prices that aren’t simply averted.
