Benjamin Franklin once wrote, “[I]n this world, nothing can be said to be certain, except death and taxes.” However, old Ben wasn’t entirely correct — at least not for retirement income.
If you’re retired, you may or may not have to pay state taxes on your retirement income. Here are 13 states that won’t tax your Social Security, 401(k), individual retirement account (IRA), or pension income.
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Depending on where you live, you might not have to wait until you’re retired to forego paying income taxes. Nine states currently have no income tax at all:
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Alaska
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Florida
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Nevada
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New Hampshire
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South Dakota
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Tennessee
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Texas
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Washington
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Wyoming
Are there any gotchas with these states? Yes, a couple.
While New Hampshire doesn’t have a state income tax, it does levy taxes on dividends and interest. The good news for retirees is that you won’t pay those taxes on dividend and interest income within an IRA or 401(k). Even better news: New Hampshire will phase out these taxes after 2024.
Also, the state of Washington taxes capital gains. That might have changed next year, but voters rejected an initiative to eliminate the taxes.
All the other U.S. states still have income taxes. However, four of them don’t tax retirement income, including money received from Social Security, 401(k) plans, IRAs, or pensions:
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Illinois
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Iowa
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Mississippi
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Pennsylvania
However, in some cases, when you withdraw money from a retirement account could be important. In Mississippi, for instance, early distributions aren’t viewed as retirement income and could be subject to taxes. Pennsylvania also taxes early distributions.
Alabama will tax retirement income from 401(k) plans and IRAs. However, the state doesn’t tax Social Security retirement benefits or pension income from a defined benefit retirement plan.
Hawaii won’t tax any retirement distributions from private or public pension plans as long as retirees don’t contribute to the plans. Retirement plans with employee contributions are taxable only on the portion of increased value in the plan resulting from the employee contributions.
There’s good news and bad news if you’re retired and live in a state not already mentioned. First, the bad news: You might have to pay state taxes on at least some of your retirement income.
