Let's face it. Whether you're working or retired, paying income taxes can be a burden. While each of us has a civic duty to contribute to the governments we benefit from, most consumers generally want to keep the amount as small as possible.
Well, there's good news for current and future retirees: A handful of states don't tax any retirement income at all. Now, you shouldn't simply move to one of these states as a means of lowering your tax bill. However, there's nothing wrong with at least considering this benefit when making larger life plans.
As of this year, nine U.S. states impose no income taxes on retirees’ income because they don’t charge income taxes on anyone. Other forms of revenue, such as sales and property taxes, are sufficient to fund them. The nine tax-free states include:
Alaska
Florida
nevada
New Hampshire
south dakota
tennessee
Texas
washington
Wyoming
Yes, New Hampshire is correctly on this list without any extra footnotes. By the end of 2024, the country did Taxes Dividend and interest income – often an important source of funds for retirees. However, from the beginning of 2025, this tax has also been removed, making it a truly tax-free residence for all residents. Of course, these retirees may still be subject to federal taxes as well as any city or county taxes.
Four other states impose regular income taxes but still make exceptions for their retiree income. However, each state's rules may still differ slightly.
Illinois: This is where the difference is simplest - distributions from 401(k) and other retirement accounts as well as pension income and Social Security payments are not subject to income tax in Illinois.
Iowa: As long as you are 55 or older, money you withdraw from 401(k) accounts, individual retirement accounts (IRAs) and other similar tax shelters is not taxed as income. Neither is Social Security income.
Mississippi: As long as you meet the requirements of a retirement plan (which most people considering this option do), most of the above sources of income can also avoid paying taxes in Mississippi. However, early distributions from most types of retirement accounts are considered ordinary income and taxed accordingly.
Pennsylvania: This state taxes job-based wages, but not IRAs, 401(k) accounts, or even Social Security income. In Pennsylvania, pension income is not taxable as long as the recipient is over 60 years old.
In case you're probably wondering, most states do not impose income taxes on Social Security income. In fact, only a few states do this, making it easier to simply share a shorter list of areas where you can benefit from this government-run program Do Added to your total potential tax liability. The nine states are:
colorado
connecticut
minnesota
Montana
New Mexico
rhode island
Utah
Vermont
west virginia
That being said, know that West Virginia has been reducing the tax burden on Social Security income for some time and will phase out all state taxes on these benefits by 2026.
There was a time when avoiding state-level taxes could have a meaningful impact on a retiree's budget, and in many cases it still can.
You know, in places where many retirees may not be subject to state or even local taxes on their income, other costs are soaring. online real estate agent redfin tunaFor example, property taxes in Tampa, Florida have reportedly increased by 60% since 2019. Meanwhile, Tennessee's median home price surged from less than $250,000 to nearly $390,000 in the same time frame. This is not an insignificant change.
You should consider all factors before taking major action. Take an extended tour of your future home. There is always more to the story.
So, sit down and crunch some numbers. Compare your budget for what it might cost to stay in your current location versus somewhere you might like to live. If, like most retirees, you have a limited budget, this time may be well spent.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Redfin and recommends the following options: Short the February 2025 $10 call option on Redfin. The Motley Fool has a disclosure policy.
It's true: These 13 states don't tax retirement income Originally published by The Motley Fool