Benjamin Franklin once wrote: ‘[I]In this world nothing can be said with certainty, except death and taxes.” Old Ben wasn’t quite right, though – at least not when it came to retirement income.
If you are retired, you may or may not have to pay state taxes on your retirement income. Here are 13 states that don’t tax your Social Security, 401(k), individual retirement account (IRA), or retirement income.
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Depending on where you live, you may not have to wait until you retire to pay 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 problems with these states? Yes, a couple.
Although New Hampshire has no state income tax, it does impose 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.
Washington state also taxes capital gains. That might have changed next year, but voters rejected an initiative to eliminate the taxes.
All other US states still have income taxes. However, four of them do not 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 it may be important to withdraw money from a retirement account. In Mississippi, for example, early benefits are not considered retirement income and may be subject to taxes. Pennsylvania also taxes early distributions.
Alabama will tax retirement income from 401(k) plans and IRAs. However, the state does not tax Social Security retirement benefits or pension income from a defined benefit plan.
Hawaii will not tax retirement benefits from private or public pension plans as long as retirees do not contribute to the plans. Pension plans with employee contributions are only taxable on the portion of the increase in the value of the plan that results from the employee contributions.
There’s good news and bad news if you’re retired and living in a state not yet mentioned. First, the bad news: You may have to pay state taxes on at least some of your retirement income.
