Affording to retire can be difficult enough, and having your retirement income taxed can leave you with less money.
To start, the federal government taxes income from a 401(k) retirement plan, traditional IRA or pension, along with taxing Social Security benefits. In addition, most states tax at least some part of retirement income.
However, there are a dozen states that don’t tax the most common types of retirement income: 401(k)s, IRAs and pensions. Below are some quick highlights of how those 12 states handle such funds:
Alaska. This is the only state that doesn’t collect state sales tax or levy an individual income tax, so even people who aren’t retired can benefit. Alaska also doesn’t tax Social Security benefits, and it doesn’t have an inheritance or an estate tax.
Florida. The Sunshine State doesn’t tax basic retirement income, nor does it have an income tax or tax Social Security benefits. There are no inheritance or estate taxes either.
Illinois. This is the only state in the Midwest that doesn’t tax 401(k), IRA and pension income. Illinois has an estate tax for estates worth more than $4 million.
Mississippi. The state won’t tax retirement income for retirees who are at least 59.5 years old, but people who retire early will have such income taxed. Mississippi doesn’t have inheritance or estate taxes.
Nevada. Known for gambling, Nevada doesn’t tax retirement income or have an income tax. In addition, Nevada doesn’t tax Social Security benefits, nor does it have inheritance and estate taxes.
New Hampshire. This is the only state in New England that doesn’t have a general income tax. It does, however, tax interest and dividends. Retirement income isn’t taxed.
Pennsylvania. Pension income isn’t taxed in Pennsylvania if received from an eligible employer-sponsored retirement plan. While payments from a 401(k) or IRA aren’t taxed unless you retire early, the state does have an inheritance tax that ranges anywhere from 4.5 to 15 percent.
South Dakota. Situated in the Midwestern region of the United States, South Dakota doesn’t tax retirement income, and it doesn’t have an income tax.
Tennessee. The heart of the country music scene, the state’s income tax is limited, taxing only interest and dividends. Additionally, retirement income isn’t taxed.
Texas. The Lone Star State doesn’t have a personal income tax, and it doesn’t tax retirement income.
Washington. This Pacific Coast state doesn’t have an income tax and doesn’t tax retirement income. It does have an estate and inheritance tax, though.
Wyoming. This Western state doesn’t tax retirement income or have an income tax. It also doesn’t have an inheritance or estate tax.
Whether you’re already retired or planning ahead, calling one of these 12 states home could help you keep more money in your pocket.
This article is intended for informational purposes only and should not be construed as professional or legal advice.
