Depending on how much you've saved, you may have to pay federal taxes on your retirement income.
About half of Social Security recipients pay taxes on their benefits, for example, according to data from Pew Research.
On the state level, however, there's a lot of nuance: Some states don't have any income tax, while others exempt retirement income. Only nine states tax Social Security benefits (and most have exemptions) and a few states tax 401(k) plans and IRA distributions, but not pensions.
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Which states don't tax Social Security?
Only Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Vermont, Utah and West Virginia tax Social Security benefits.
West Virginia is phasing out its tax: For 2025 returns (filed in 2026), 65% of benefits will be tax-exempt. For 2026 returns (filed in 2027), benefits will be completely exempt.
Which states don't tax 401(k) accounts or IRAs?
Nine states don't have any income tax, whether on paychecks, 401(k)s, IRAs, or pensions.
- Alaska
- Florida
- Nevada
- New Hampshire (only taxes dividend and interest income)
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Four more states have a state income tax but exempt retirement income.
- Illinois
- Iowa (must be 55 or older)
- Mississippi (must meet retirement plan requirements)
- Pennsylvania (must meet retirement plan requirements)
Tax laws are always changing, so stay up-to-date with your state tax commission.
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Which states don't tax pensions?
15 states don't tax pensions, although other states provide a credit or exemption for a portion of pension income.
- Alabama (does tax 401(k) and IRA distributions)
- Alaska
- Florida
- Hawaii (does tax 401(k) and IRA distributions)
- Illinois
- Iowa
- Mississippi
- Nevada
- New Hampshire
- Pennsylvania
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Don't wait to save for retirement
When it comes to your retirement funds, the lowest-hanging fruit is taking advantage of your employer's 401(k), especially if your company offers to match your contributions.
The money you put in is taken from pre-taxed income, which lowers your taxable income for the year and can put you into a lower tax bracket.
If your employer doesn't offer a 401(k) — or if you want to supplement it — a Roth IRA is a great way to maximize your retirement savings. You contribute after-tax dollars, so your withdrawals later in life are tax-free. Fidelity and Wealthfront are among our top picks for Roth IRAs.
Having both a 401(k) and a Roth IRA allows you to diversify your portfolio and take advantage of different tax benefits and withdrawal options.
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Retirement tax FAQs
What is the most tax-friendly state for retirees?
The most tax-friendly state for retirees is Alaska, where there's no income tax and no state sales tax, no estate tax and no inheritance tax.
What retirement accounts are tax-exempt?
Retirement accounts that are tax-exempt, or accounts where your withdrawals are tax-free because you pay taxes upfront, are Roth IRAs and Roth 401(k)s.
Does West Virginia tax Social Security?
West Virginia introduced a three-year phaseout of its tax on Social Security benefits. For 2025 returns, 65% of benefits will be tax-exempt. For 2026 returns (filed in 2027), benefits will be completely exempt. During the phaseout, however, there is no exemption for lower-income residents.
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