Several U.S. states do not tax pension income, offering significant tax advantages for retirees. The primary states with no income tax at all, which consequently do not tax pensions, are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Additionally, states like Pennsylvania, Illinois, Mississippi, Iowa, Hawaii, and Alabama fully or largely exempt certain pension incomes from taxation.
Which states don't tax pensions?
If you receive retirement benefits in the form of pension or annuity payments from a qualified employer retirement plan, all or some portion of the amounts you receive may be taxable unless the payment is a qualified distribution from a designated Roth account.
What are the best states to retire for taxes on retirement withdrawals? Nine states have no income tax. These are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. An additional 4 states do not tax income from IRAs.
The key to a tax-free pension rollover is to keep your pension distribution intact in a rollover account until you reach age 59 1/2. Or, should you absolutely need to tap into your pension funds before then, do so sparingly and wisely.
Frequently asked questions about state retirement taxes
As of 2025, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no individual income tax. New Hampshire is phasing out its tax on interest and dividends and expects to become a no-income-tax state by 2027.
The $1,000 a month rule is a retirement guideline suggesting you need about $240,000 saved for every $1,000 per month in desired income, based on a 5% annual withdrawal rate (5% of $240k is $12k/year, or $1k/month). It's a simple way to set savings goals, but it doesn't account for inflation, taxes, or other income like Social Security, so it's best used as a starting point, not a complete plan.
A pension worth up to £10,000
You can usually take any pension worth up to £10,000 in one go. This is called a 'small pot' lump sum. If you take this option, 25% is tax-free.
Yes. The United States taxes its citizens on worldwide income regardless of where they live. You'll need to file a U.S. federal tax return each year, even if all your income comes from foreign pensions or investments.
States with no income tax — like Florida, Texas, and Wyoming — are often considered tax-friendly for retirees. These states typically don't tax Social Security benefits, pensions, or retirement account withdrawals, though property and sales taxes may still apply.
If during retirement you only have income from Social Security benefits, then you will not include those benefits in your gross income. In this case, your gross income will equal zero, and you won't have to file a federal income tax return.
Most states, 41 in total plus Washington D.C., don't tax Social Security benefits, with only Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia (phasing out) taxing them as of late 2025/early 2026, according to The Motley Fool. States like Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington, and Wyoming are prominent examples that don't tax any retirement income, including Social Security.
This is the second year in a row that New Jersey came in last on the list. Other states at the bottom of the rankings included Massachusetts, New York, Alabama and Mississippi. Massachusetts (No. 50) and New York (No. 49) both incurred high costs of living and high personal income tax burdens.
Roughly 7% to 9% of American households have $500,000 or more in retirement savings, though figures vary slightly by source, with data from late 2025 suggesting around 7.2% and older 2022 data indicating about 9%, showing it's a significant milestone achieved by less than one in ten families, despite higher averages driven by wealthy individuals.
The "27.39 rule" (often rounded to $27.40) is a simple financial strategy to save $10,000 in one year by consistently setting aside $27.40 every single day, making it an achievable micro-saving habit to build wealth or an emergency fund. It turns the daunting goal of saving $10,000 into a manageable daily action, emphasizing consistency over large lump sums.