Retirement Income Tax-Free: A Complete Guide to the 13 States Where You Keep More

Understanding your state’s retirement tax policies is crucial for financial planning. Let’s examine which states offer genuine tax advantages for retirees and how this affects your overall retirement strategy.

Social Security Benefits: The 41-State Advantage

A significant majority of Americans benefit from favorable state treatment of Social Security. Forty-one states, plus Washington, D.C., impose no taxation on Social Security benefits whatsoever. This represents substantial savings for most retirees.

The average monthly Social Security payment currently stands at $1,979, translating to approximately $23,750 annually. For those receiving only this income source, residing in one of these 41 states means keeping the entire amount without state taxation.

These states include: Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming, and Washington, D.C.

Concerning trends exist, however. The Social Security system faces funding pressures, with reserves projected to decline significantly in coming years. Planning for potential benefit reductions is prudent.

The Exception: 9 States That Do Tax Social Security

Only nine states currently tax Social Security benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. However, the impact varies considerably because most impose income or age thresholds that exclude lower-income and older residents from taxation.

The positive news: this number has decreased from 13 states in 2016, suggesting the trend favors retirees.

Income Taxation: Nine States With No Levies

For general income, nine states levy zero income taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Eight of these eliminate all income taxation, while New Hampshire historically taxed interest and dividends—a policy changing in 2025 and beyond.

These states fund operations through alternative revenue sources, particularly sales taxes and property taxes. Prospective residents should evaluate the complete tax burden, not just income tax rates.

Specialized Retirement Income: Four States That Exclude It

Beyond the no-income-tax states lie four that take a middle approach. Illinois, Iowa, Mississippi, and Pennsylvania tax general income but specifically exempt retirement income from taxation. For retirees receiving pension distributions or retirement account withdrawals, this distinction provides meaningful relief.

The Complete Tax-Free Picture: 13 States

Combining all categories reveals thirteen states offering comprehensive retirement income protection from state taxation. These states will not tax Social Security benefits, earned income, pension withdrawals, dividend income, interest, or other retirement account distributions:

Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Residents of these states enjoy significant advantages, though federal taxation remains applicable for most income types.

Building Your Complete Retirement Strategy

Tax efficiency represents just one component of retirement planning. Successful retirees establish diversified income streams, potentially combining dividend-paying stock portfolios, pensions, Social Security, annuities, and retirement account distributions. This diversification provides both financial flexibility and tax optimization opportunities.

Estimating your specific financial needs, determining your target retirement age, and calculating required savings constitute essential preparatory steps. Many retirees discover that strategic Social Security claiming timing and income source sequencing yield substantial benefits—sometimes thousands annually—through optimization strategies they initially overlooked.

For accurate projections, establish a my Social Security account at the Social Security Administration website, which provides personalized benefit estimates and planning tools.