Let’s be honest: whether you’re still working or enjoying retirement, paying income taxes isn’t exactly exciting. While contributing to the government’s revenue is a civic duty, most people prefer to reduce their tax liabilities.
Here’s some great news for current and future retirees: several states do not tax any retirement income at all. You should not rush to relocate solely to lower your tax bill, but it is worth considering this benefit as part of your overall life plans.
States That Don’t Tax Retirement Earnings
As of this year, nine states in the United States do not levy income taxes on retirees’ earnings—simply because no one pays income taxes. These states fund their budgets through other sources of revenue, such as sales and property taxes. Here are the nine states that have no income tax:
- Florida
- Texas
- Washington
- Alaska
- Nevada
- South Dakota
- Wyoming
- Tennessee
- New Hampshire
Consider how these states may fit into your overall life plan, particularly if you want to optimize your retirement strategy.
Exploring the allure of states without a state income tax can be fascinating, especially for retirees and those looking for financial benefits. Here’s a closer look at some of these states, each with its own distinct set of benefits.
States Without State Income Tax
These states are known for not imposing a state income tax, making them appealing to residents who want to maximize their financial freedom:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
New Hampshire: A Noteworthy Mention
Yes, New Hampshire is properly listed here. Previously, the state taxed dividend and interest income, which was a major concern for retirees who rely on these funds. However, beginning in 2025, this tax will be eliminated, transforming New Hampshire into a truly tax-free haven for all residents. It’s worth noting that, while state income tax isn’t an issue, residents may still face federal, city, or county taxes.
States With Exceptions for Retirees
While some states impose a regular income tax, they make exceptions for retirees, providing financial relief in various forms:
- Illinois: The rules here are straightforward. In Illinois, distributions from 401(k)s, other retirement accounts, pension income, and Social Security payments are exempt from state income tax.
Understanding these nuances can help you make a more informed decision about where to retire, while also providing financial benefits that match your lifestyle needs.
