The most pension-friendly states for retirees are the nine that charge no state income tax at all — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — along with a smaller group like Pennsylvania, Mississippi, and Illinois that fully exempt retirement distributions even though they tax wages. Where the picture gets complicated is everything else: property taxes, sales taxes, Social Security treatment, and estate taxes can quietly undo the savings a low income tax rate promised.
The Nine States With No Income Tax
In Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, pension checks, 401(k) withdrawals, IRA distributions, and Social Security payments are all beyond the reach of state tax collectors because no personal income tax exists.
New Hampshire is the newest addition. The state used to tax interest and dividend income under NH Rev Stat § 77:1, but that statute was repealed effective January 1, 2025, after a multi-year phasedown.1New Hampshire General Court. New Hampshire Revised Statutes Section 77-1 – Rate As of 2026, New Hampshire residents face no state-level tax on any form of personal income.
These states still have to fund their governments somehow. Texas and New Hampshire rely heavily on property taxes. Nevada and Tennessee lean on sales taxes. Alaska benefits from oil revenue. A retiree renting an apartment in a low-property-tax pocket of Florida gets more from the no-income-tax structure than a homeowner sitting on a $400,000 house in New Hampshire. The income tax advantage is real, but it doesn’t exist in a vacuum.
States That Fully Exempt Pension Income
Some states keep a standard income tax on wages and investment earnings but carve out a complete exemption for retirement distributions. Pennsylvania is the clearest example. Under state law, distributions from qualified retirement plans are not taxable once you have retired and met the plan’s age or years-of-service requirement.2Commonwealth of Pennsylvania Department of Revenue. PA Personal Income Tax Guide – Gross Compensation That covers traditional pensions, 401(k) distributions, and Social Security. Wages from part-time work in retirement are still taxed, but your pension check arrives untouched.
Mississippi takes a similar approach by excluding qualified retirement income from gross income entirely.3Justia. Mississippi Code Title 27 Chapter 7 Section 27-7-15 Pensions, 401(k) distributions, IRA withdrawals, and Social Security are all exempt. Illinois fully exempts retirement income from its state income tax as well, making it a strong option despite its flat rate on wages. If your income comes almost entirely from a pension, these states effectively function like no-income-tax states.
IRA and 401(k) Treatment Is Not Always Identical
Not every state that exempts pension income extends the same treatment to IRA withdrawals. Hawaii, for instance, does not tax pension income when the employer was the sole contributor to the plan, but that language does not clearly cover traditional IRA distributions funded by employee contributions. Alabama exempts defined benefit retirement plans but treats other retirement account withdrawals differently. Before you relocate, check whether your specific type of account qualifies. The label “pension-friendly” can mislead if your income comes primarily from a traditional IRA or a 401(k) rather than a defined benefit pension.
Roth accounts are generally not a state-level concern. Because qualified Roth withdrawals are tax-free under federal law, states that conform to federal definitions of taxable income don’t pick them up either.
Partial Pension Exemptions
Many states shield a set dollar amount of retirement income rather than exempting all of it. These partial exemptions cover most retirees with moderate pensions while still collecting from higher-income filers.
Georgia offers one of the more generous ones. Under O.C.G.A. § 48-7-27, taxpayers age 65 and older can exclude up to $65,000 per person in retirement income from state taxable income.4Justia. Georgia Code 48-7-27 – Computation of Taxable Net Income For filers between 62 and 64, the exclusion drops to $35,000. A married couple filing jointly, both 65 or older, could exclude up to $130,000 in combined retirement income.
South Carolina uses a layered deduction. Retirees 65 and older can deduct up to $10,000 in qualifying retirement income plus an additional age-65 deduction, though the combined total of both deductions cannot exceed $15,000 per taxpayer. Before age 65, the retirement income deduction caps at $3,000. Qualifying income includes distributions from 401(k), 403(b), 457, and IRA plans, plus military retirement and public employee pensions.5South Carolina Department of Revenue. IIT FAQs
When your pension exceeds the threshold, only the excess is taxed at the state’s standard rates. A Georgia retiree with $70,000 in pension income and a $65,000 exclusion pays state tax on just $5,000. For moderate pensions, these states can feel almost as good as no-tax states. For high earners drawing from multiple accounts, the offset shrinks.
States That Still Tax Social Security
Most states exempt Social Security, but eight still tax these benefits to some degree in 2026: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. Each applies its own income thresholds, so how hard the tax hits depends on your total income.
Colorado lets taxpayers 65 and older deduct all federally taxed Social Security from state income. Retirees aged 55 to 64 can deduct up to $95,000 (married filing jointly) or $75,000 (single). Connecticut exempts benefits entirely when adjusted gross income stays below $75,000 for single filers or $100,000 for joint filers, and even above those thresholds no more than 25 percent of benefits are taxed. New Mexico exempts single filers earning under $100,000 and joint filers under $150,000. Vermont fully exempts benefits for joint filers with AGI of $70,000 or less and single filers at $55,000 or less, phasing out above those amounts. Rhode Island taxes benefits only when a joint filer’s AGI reaches $133,750 or a single filer’s reaches $107,000.
The common thread: lower-income retirees in these states often pay nothing on Social Security, while higher earners get hit. If Social Security is a large share of your income and you are eyeing one of these eight states, run the numbers at your actual income level rather than assuming the tax applies automatically.
Military and Federal Government Pensions
Military retirees have seen a wave of state tax relief. Most states now provide at least a partial exemption for military retirement pay, and some exempt it entirely. The nine no-income-tax states protect military pensions automatically, and states like Pennsylvania and Mississippi cover them under their broader retirement income exclusions.
Recent expansions are worth knowing. California offers a partial exemption of up to $20,000 on military retired pay for single filers with federal AGI under $125,000 or joint filers under $250,000, available through 2030. Vermont fully exempts military retirement income for retirees with federal AGI below $125,000, with a partial exemption up to $175,000. Delaware offers a $12,500 exemption on military retired pay regardless of age, which folds into a broader pension exemption after age 60.6Soldier for Life. 2026-02 MAB State Tax Breaks Expand
Federal civilian retirees under FERS or CSRS generally don’t get the same state-level carve-outs. Federal annuities are treated as regular pension income in most states. One wrinkle to know: disability annuities from CSRS or FERS are taxed as wages until you reach minimum retirement age, not as pension income.7U.S. Office of Personnel Management. Tax Information for Annuitants That distinction can cost early retirees a state exemption they thought they were getting.
Property Tax Can Undo the Savings
Income tax gets the attention, but property taxes can quietly consume whatever you saved. Effective rates across the country range from around 0.27 percent to over 2.3 percent of assessed home value. On a $300,000 home, that’s the difference between roughly $800 a year and $7,000 a year.
Texas and New Hampshire show the tradeoff. Both lack income tax and both consistently rank among the highest property tax states. New Hampshire’s effective rate sits near 1.93 percent, producing a median annual property tax bill above $6,200. Wyoming, another no-income-tax state, keeps property taxes far lower. The no-income-tax label tells you nothing about what your home will cost you each year.
Many states offset this with senior-specific homestead exemptions worth investigating before you write off a state:
- Florida offers a low-income senior exemption worth up to $50,000 for homeowners 65 and older with income at or below $37,694, plus a long-term resident exemption of up to $250,000 for seniors who have lived in their homes for 25 years or more.
- Texas provides a $60,000 exemption on school district taxes for homeowners 65 and older, on top of the standard homestead exemption.
- Ohio reduces taxable home value by up to $29,000 for homeowners 65 and older with income of $40,000 or less.
- Wyoming allows a 50 percent reduction in assessed value for long-term homeowners at least 65 years old with 25 years of property tax payments, though this provision expires in 2027.
- Alaska exempts the first $150,000 of assessed property value for adults 65 and older.
These can shift the math significantly. A state with a high headline property tax rate and a generous senior exemption can end up cheaper than a low-rate state with no exemptions at all.
Sales Tax Is the Hidden Drain
Sales tax never appears on a single statement, but it adds up across every purchase you make. Combined state and local sales tax rates range from zero in five states — Alaska, Delaware, Montana, New Hampshire, and Oregon — to over 10 percent in parts of Louisiana and Tennessee.
Delaware charges income tax but has no sales tax at all.8Division of Revenue – State of Delaware. Doing Business in Delaware Oregon follows the same model. For retirees who spend heavily on goods, travel, or home improvement, a zero sales tax rate can deliver more annual savings than a pension exemption worth a few thousand dollars. Tennessee, meanwhile, has no income tax but charges one of the highest combined sales tax rates in the country, which chips away at the purchasing power of every pension check.
Nevada averages a combined rate around 8.24 percent. A retiree spending $40,000 a year on taxable goods and services there pays roughly $3,300 in sales tax annually. When you compare states, estimate your annual spending on taxable purchases and multiply by the combined rate. For many retirees, the sales tax bill rivals or exceeds what they would have paid in state income tax somewhere else.
Estate and Inheritance Taxes
Pension-friendly treatment during your life doesn’t help much if the state takes a large cut when you die. Most states have no estate or inheritance tax, but a handful do, and retirees with meaningful accumulated wealth should factor this in.
Six states impose an inheritance tax, which is levied on the beneficiary rather than the estate: Iowa (scheduled for repeal), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Pennsylvania is worth flagging because it fully exempts pension income during your lifetime but imposes an inheritance tax on transfers at death. The rate depends on the relationship between the deceased and the beneficiary, with transfers to non-lineal heirs taxed at higher rates.
Several states impose a separate estate tax. Oregon’s kicks in at just $1,000,000 with rates from 10 to 16 percent. Washington charges estate tax starting at $2,193,000 in 2026, with rates from 10 to 19 percent. Connecticut matches the federal exemption at $13,610,000, which puts most estates below the threshold. Maryland is the only state that imposes both an estate tax (with a $5,000,000 threshold) and an inheritance tax.
For retirees whose wealth is concentrated in a home, retirement accounts, and life insurance, a low estate tax threshold like Oregon’s could trigger a bill their heirs don’t expect.
Making the Move Actually Count
Moving to a pension-friendly state only works if your former state agrees you left. Most states use a combination of domicile (where you intend to live permanently) and physical presence to determine tax residency. The most common bright-line test is the 183-day rule: spend more than 183 days in a state during the tax year and that state can claim you as a resident for income tax purposes. Some states apply this aggressively.
Snowbirds who split time between two states are the most vulnerable. If you keep a home in New York but spend winters in Florida, New York may still tax your pension if you maintain strong ties there: a driver’s license, voter registration, bank accounts, or a home available for your use year-round. Buying property in a no-tax state isn’t enough on its own. Update your driver’s license, register to vote in the new state, move your primary bank accounts, and document where you actually spend your days.
Residency audits are not uncommon, especially when the former state is a high-tax jurisdiction like New York, California, or Connecticut. Keep a log of your physical location, retain travel records, and make sure your paper trail lines up with the state you’re claiming as home. The savings from moving to a pension-friendly state disappear entirely if both states try to tax you.