The landscape of retirement is changing fast, especially when it comes to how much you’ll actually get to keep in your pocket. Taxes can really put a dent in your golden years, so where you decide to spend them matters more than you might think. Let’s be real, nobody wants to work their whole life just to hand a chunk of their Social Security checks or retirement funds back to their state every year.
Here’s the thing. Not all states are created equal when it comes to taxing your retirement income. Some are downright generous, letting you keep your Social Security benefits and other retirement distributions completely tax-free. Others? They’ll take a slice, and it could be a bigger piece than you’d expect. The good news is that more states are jumping on the tax-friendly bandwagon, making retirement planning just a bit easier for millions of Americans.
The States With Zero Income Tax
Eight states currently have no income tax at all, which means your Social Security benefits, pension payments, and distributions from retirement accounts like IRAs or 401ks won’t be touched by state taxes. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire make up this exclusive club. If you’re thinking about relocating, these states can be incredibly attractive from a purely tax perspective.
Think about it. Retiring to a state with no income tax can save thousands of dollars annually on your Social Security, pension and retirement account withdrawals. Florida remains one of the most popular destinations for retirees, combining warm weather with the absence of state income tax. Alaska even offers residents an annual dividend payment from its oil revenues, though the winters can be brutal and healthcare access in remote areas is limited.
Four More States That Don’t Tax Retirement Income
In addition to the nine states that don’t have an income tax at all, four states do not tax retirement income: Illinois, Iowa, Mississippi and Pennsylvania. This is a huge win for retirees because while these states do collect income tax on things like wages and investment income, they’ve carved out generous exemptions specifically for retirement funds. Illinois charges a flat state income tax of 4.95 percent, but all retirement income is exempt from paying the tax, including pension payments, as well as distributions from retirement plans such as 401ks and IRAs, and Social Security payments.
Iowa made a major shift recently. As of 2023, Iowa residents over the age of 55 are no longer taxed on their retirement income, and the state moved to a flat tax rate. Mississippi also provides full retirement income exemptions, though you’ll pay a flat income tax rate on other types of income that exceed a certain threshold. Pennsylvania rounds out this group with its relatively low flat tax rate and complete retirement income protection.
Major Changes From Missouri, Nebraska, and Kansas
Missouri and Nebraska decided to stop taxing Social Security benefits in 2024, marking a significant shift in retirement tax policy. Kansas also joined, and West Virginia is phasing out Social Security taxes, with no state income taxes on Social Security starting in 2026. These moves represent a powerful trend sweeping through the nation, as states recognize the financial pressure on retirees and respond with tax relief.
Let’s talk numbers for a second. In Missouri, retirees are looking at a collective annual saving of around $309 million. That’s money staying in people’s pockets instead of flowing into state coffers. Ending the tax in Kansas will save the state’s retirees a total of approximately $100 million annually. The impact on individual households can be substantial, especially for those living on fixed incomes who are watching every penny.
Only Nine States Still Tax Social Security Benefits
For the 2025 tax year, nine states tax Social Security benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia. That’s it. Just nine out of fifty. The list keeps shrinking year by year as states realize that taxing retirees on their Social Security can drive them to relocate or simply create undue hardship.
Here’s where it gets interesting, though. Even in these states, there are often significant exemptions and income thresholds. Single filers earning up to $100,000 per year won’t have their Social Security benefits taxed in New Mexico, and the state won’t tax Social Security benefits for joint filers who earn up to $150,000 per year. Colorado offers similar protections, especially for those over 65. Vermont and Minnesota have their own complex formulas based on adjusted gross income.
Understanding the Income Exemptions and Thresholds
The devil is always in the details. Beginning in 2025, individuals ages 55 to 64 in Colorado were able to deduct all federally taxable Social Security income if their AGI was $75,000 or less for an individual and $95,000 or less for a couple filing jointly. Above those thresholds, $20,000 of federally taxable Social Security income could be excluded. These kinds of nuanced rules mean that just because a state technically taxes Social Security doesn’t mean you’ll necessarily owe anything.
Connecticut operates on similar principles. Federally taxable Social Security benefits are not taxable in Connecticut if AGI is below $75,000 for single filers, and there’s no tax if AGI is below $100,000 for those married filing jointly. Rhode Island also provides exemptions for those who’ve reached full retirement age and meet certain income requirements. It’s worth doing the math on your specific situation rather than writing off an entire state based on a blanket policy.
What does all this really mean for you? Honestly, where you retire can make a massive difference in how far your retirement savings stretch. If you’re strategic about it, you could potentially save thousands each year by choosing the right location. The tide is clearly turning in favor of retirees across the country, with more states recognizing the need to ease the tax burden on those living on fixed incomes.
