Retire Without State Taxes: States That Let You Keep Every Dollar You Earn

Key Takeaways Illinois, Iowa, Mississippi, and Pennsylvania are considered to be the most tax-friendly states for retirees. Forty-one states don't tax Social Security income. Thirty-seven states don’t tax most military retirement pay. Fifteen states exempt pension income from state taxes. Nine states have no income tax at all. 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. Now you’re ready to punch your last time card, and your state has its hand out for some tax dollars as well. Some states exempt multiple forms of retirement income and eight states have no income tax at all.Tim Robberts / Getty Images A man fishing the Arkansas River.Getty Images/Samuel Wells Courtesy of Enjoy Illinois A colorful fall scene in Burlington, Iowa.Travel Iowa Tourism Gulfport, Mississippi.Joe Raedle / Staff / Getty Images Arethusa Falls is the most dramatic waterfall in New Hampshire, so make it a "must" on your tour.Media photo courtesy of the New Hampshire Division of Travel and Tourism Pocono Lake, Pennsylvania.Roy Morsch/Getty Images South Carolina's UFO Welcome Center is a welcome reprieve for UFO enthusiasts.Rachid Dahnoun/Aurora/Getty Images Or does it? While federal taxes are unavoidable, some states are much kinder than others when it comes to taxing retirement income . Others don't tax it at all. States That Don’t Tax Retirement Income Arkansas A man fishing the Arkansas River. Getty Images/Samuel Wells Arkansas offers retirees a break by exempting up to $6,000 per year from public and private employer-sponsored pension plans and IRA distributions received after the age of 591⁄2 or because of death or disability. It also doesn’t tax Social Security income or tax military retirement pay at all. Plus, Arkansas imposes no estate or inheritance tax, so your heirs won’t face additional tax burdens. Illinois Courtesy of Enjoy Illinois Illinois is another state that is friendly to retirees. The state 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 and taxes estates and inheritances. Iowa A colorful fall scene in Burlington, Iowa. Travel Iowa Tourism Iowa recently updated its tax laws to be more retirement-friendly . As of January 2023, the state no longer taxes pension, 401(k) , or IRA income for residents over age 55. If you qualify, you can enjoy tax-free retirement income starting at age 55. Two years later, on January 1, 2025, the state transitioned from a graduated tax system (with a top rate of 5.7%) to a flat tax system, with a rate of 3.8%. Also, the state no longer has an inheritance tax as of 2025. Mississippi Gulfport, Mississippi. Joe Raedle / Staff / Getty Images Mississippi spares retirement plan distributions, pension income , 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. New...

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