All the States That Don’t Tax Retirement Distributions

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The transition to retirement — going from a steady paycheck to living on a fixed income or pension — can be difficult to navigate. In addition — with inflation, tariffs and potentially soaring rates — many Americans have been struggling to keep pace with retirement savings, let alone their federal income taxes.

Against this backdrop, one factor that can help is which state you live in, as this will affect how much of your retirement distributions you will keep. As any tax advisor would explain, you must pay income tax on your pension and on withdrawals from any tax-deferred investments — such as traditional IRAs, 401(k)s, 403(b)s and similar retirement plans and tax-deferred annuities — in the year you take the money. And your withdrawals are taxed as ordinary income.

Luckily, some states don’t have income tax, which in turn translates into no taxes on Social Security income, adjusted gross income or retirement distributions, and some states exempt retirement income from taxation. Here’s a breakdown:

• States with no income tax include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming.
• Washington does not tax income but does tax capital gains of certain high earners. 
• Keep in mind that states with no income tax may still charge other taxes, such as sales and property taxes, which could be higher to compensate.

States With No Taxation on Retirement Income

There are states where you’ll have less math to do when it comes to income tax rates or required minimum distributions for such retirement accounts as a simple IRA or 401(k). The following states do not tax retirement distributions.

Illinois

The state has a flat state income tax of 4.95% and exempts from taxation nearly all retirement income, including Social Security, pensions and 401(k) and IRA distributions.

According to the Illinois Department of Revenue, this includes retirement distributions received from:

• Qualified employee benefit plans, including 401(k) plans, IRAs and Roth IRAs
• The redemption of U.S. retirement bonds
• State and local government deferred compensation plans
• Government retirement or government disability plans, including military plans
• Railroad retirement income
• Retirement payments to retired partners
• Lump sum distributions of appreciated employer securities
• The federally taxed portion of Social Security benefits

Mississippi

Mississippi’s tax rate was reduced to 4.4% in 2025 and is projected to decrease again to 4% in 2026. The income tax rates are 0% on the first $10,000 of taxable income and 4.7% on income above that level.

However, retirement income is not taxed as long as you’ve met the plan requirements. Currently, Social Security and pensions as well as 401(k) and IRA distributions are not taxable. Mississippi exempts all forms of retirement income from taxation and has low property taxes and moderate sales taxes, making it an ideal place to retire affordably.

Pennsylvania

Pennsylvania’s personal income tax is imposed annually on individuals at a flat rate of 3.07%, according to the Pennsylvania Department of Revenue. However, it’s good to know that retirement income is not taxed as long as plan requirements are met — Pennsylvania doesn’t tax any traditional types of retirement income.

In fact, Pennsylvania does not tax retirement income from commonly recognized retirement plans that were sponsored by your employer, Social Security, pensions, old age benefits or disability retirement.

Iowa

Iowa began excluding retirement income from taxable income for eligible taxpayers for tax years beginning in 2023. That means residents over the age of 55 are no longer taxed on their retirement income, but Iowa has a flat tax rate of 3.8 % as of last year.

The retirement income exclusion covers “governmental or other pension or retirement plan[s] including defined benefit or defined contribution plans, annuities, individual retirement accounts, plans maintained or contributed to by an employer, or maintained or contributed to by a self-employed person as an employer, and deferred compensation plans or any earnings attributable to the deferred compensation plans,” according to the Iowa Department of Revenue.

To qualify for the retirement income exclusion, the department explains on its website that the taxpayer must be 55 years of age or older on Dec. 31 of the tax year, or disabled, or a surviving spouse or a survivor having an insurable interest in an individual who has qualified for the exclusion in the tax year on the basis of age or disability.

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