States That Don't Tax Retirement Income
Those eight – Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming – don't tax wages, salaries, dividends, interest or any sort of income.
Alaska had the lowest tax burden in the U.S. in 2021, though it was also one of the least affordable states to live in.
South Dakota ranks as the best state for retirement in the United States. The average cost of living in South Dakota is 4% below the national average, including healthcare costs.
Hawaii has one of the lowest average state and local tax burdens in the U.S. for retirees.
Nine of those states that don't tax retirement plan income simply because distributions from retirement plans are considered income, and these nine states have no state income taxes at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
Hawaii. Hawaii has the lowest effective property tax rate in the country, but it does cost to live in paradise. It is one of the most expensive states to live in and has the highest median home value, which means that the actual dollar amount homeowners spend is on the high side.
Unfortunately, there are no states without a property tax. Property taxes remain a significant contributor to overall state income. Tax funds are used to operate and maintain essential government services like law enforcement, infrastructure, education, transportation, parks, water and sewer service improvements.
Mississippi has the lowest cost of living in the United States. With a cost of living index of 83.3, expenses are nearly 17% less than the national average. Mississippi's housing costs are the lowest in the nation.
Here again, there are many states (14 to be precise) that do not tax pension income at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming New Hampshire, Alabama, Illinois, Hawaii, Mississippi, and Pennsylvania.
When you withdraw funds from your 401(k)—or "take distributions," in IRS lingo—you begin to enjoy the income from this retirement mainstay and face its tax consequences. For most people, and with most 401(k)s, distributions are taxed as ordinary income.
At 65 to 67, depending on the year of your birth, you are at full retirement age and can get full Social Security retirement benefits tax-free.
Some people who get Social Security must pay federal income taxes on their benefits. However, no one pays taxes on more than 85% percent of their Social Security benefits. You must pay taxes on your benefits if you file a federal tax return as an “individual” and your “combined income” exceeds $25,000.
Yes. There is nothing that precludes you from getting both a pension and Social Security benefits. But there are some types of pensions that can reduce Social Security payments.
Cape Coral, Fla. With its desirable climate and favorable tax status, Florida is filled with popular retirement destinations. Many of our favorite retirement spots in the Sunshine State can be found along the Gulf Coast including St. Petersburg, Sarasota and Punta Gorda.
With its low costs and generous tax situation, North Dakota has consistently ranked highly among our best states for retirement.
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.
Alaska is an income-tax and sales-tax-free state, making it one of the best places to retire on a fixed income.
When you take 401(k) distributions and have the money sent directly to you, the service provider is required to withhold 20% for federal income tax. 1 If this is too much—if you effectively only owe, say, 15% at tax time—this means you'll have to wait until you file your taxes to get that 5% back.