States That Don’t Tax Retirement Income: Your Pension Tax Guide 

Quick Answer: Nine US states impose zero income tax on all retirement income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Additionally, 12 states provide full or partial exemptions on pension income, and over 15 states offer military retirement tax benefits. Strategic relocation can save retirees thousands annually while maintaining Medicare coverage and family proximity. 

According to the Tax Foundation, retirees in high-tax states like New York (15.9% total tax burden) and Connecticut (15.4% total tax burden) can achieve substantial savings by relocating to tax-friendly states. The best part is that you can keep all federal benefits, including Medicare and Social Security, without international complications. 

The Nine States With No Income Tax 

These states don’t tax any income, including pensions, 401(k) distributions, IRA withdrawals, and Social Security benefits: 

Florida: The Retirement Capital 

Florida is America’s top retirement destination, with zero state income tax and additional retiree benefits. The state offers homestead exemptions, reduces property taxes for primary residences, and has 21% of residents over 65, creating an excellent healthcare infrastructure. 

Tax benefits: 

• No state income tax on any source 
• No inheritance tax 
• Property tax exemptions for seniors 
• No tax on retirement account distributions 

Cost advantage: Despite tourism taxes, Florida’s overall cost of living remains 3% below the national average in many areas. 

Texas: Big State, Zero Tax 

Texas combines zero income tax with diverse geography and major metropolitan areas. While property taxes run higher than average, seniors over 65 receive significant exemptions that often offset this burden. 

Retiree benefits: 

• No state income tax 
• Senior property tax exemptions at age 65 
• Homestead exemptions up to $40,000 
• No inheritance tax 

Tennessee: Mountain Tax Haven 

Tennessee eliminated its tax on investment income in 2021, joining the zero-tax states. The state’s cost of living is 11% below the national average, making retirement dollars stretch further. 

Financial advantages: 

• No state income tax (eliminated investment income tax) 
• Low property taxes 
• No inheritance tax 
• Affordable healthcare options 

Nevada: Western Tax Freedom 

Nevada attracts California retirees seeking tax relief without extreme weather changes. The state offers zero income tax with moderate property taxes and no inheritance tax. 

Practical benefits: 

• No state income tax 
• No inheritance tax 
• Proximity to California family/friends 
• Moderate property tax rates 

Other Zero-Tax States 

Alaska provides the unique Permanent Fund Dividend, typically $1,000-2,000 annually for residents, plus zero income tax. South Dakota and Wyoming offer some of America’s lowest overall tax burdens. Washington provides zero income tax with excellent healthcare systems, while New Hampshire taxes only investment income (being phased out) and has no sales tax. 

States That Don’t Tax Pensions 

These states maintain income taxes but exempt qualified pension income: 

Illinois: Pension Paradise 

Illinois offers a complete exemption on qualified pension income and doesn’t tax Social Security benefits. Despite a 4.95% income tax rate on other sources, retirees with pension income often pay zero state taxes. 

Retirement benefits: 

• No tax on qualified pension distributions 
• No tax on Social Security 
• 401(k) and IRA distributions are exempt 
• Property tax exemptions for seniors 

Pennsylvania: Broad Pension Exemptions 

Pennsylvania exempts all pension and retirement account distributions from its 3.07% flat income tax rate. This includes 401(k), IRA, and qualified pension plan distributions. 

Tax advantages: 

• No tax on any retirement account distributions 
• No tax on Social Security 
• Relatively low flat tax rate 
• Senior property tax rebates are available 

Mississippi: Complete Pension Relief 

Mississippi provides full exemption on qualified pension income, combined with a low cost of living. The state doesn’t tax Social Security and offers additional senior exemptions. 

Financial benefits: 

• No tax on qualified pension income 
• No tax on Social Security 
• Low cost of living (15% below the national average) 
• Senior homestead exemptions 

Additional Pension-Friendly States 

• Michigan offers pension exemptions for those born before 1953, with partial exemptions for younger retirees.
• New York provides up to $20,000 in pension exemptions.
• Alabama and Hawaii offer varying levels of pension and retirement income exemptions. 

States That Don’t Tax Military Retirement 

Military retirees enjoy expanded options beyond general pension exemptions: 

Full Military Retirement Exemptions 

Alabama, Hawaii, Illinois, Louisiana, Massachusetts, Nebraska, New Jersey, New York, Ohio, and Wisconsin provide full or substantial exemptions on military retirement pay. 

Kansas exempts military retirement up to $6,000 annually, while Minnesota offers partial exemptions for qualifying military retirees. 

Military-Friendly Tax Strategies 

Virginia and North Carolina offer partial military retirement exemptions, military-friendly communities, and excellent VA healthcare facilities. 

The nine zero-tax states automatically provide the best military retirement benefits by exempting all income sources. 

State Tax Comparison for Retirees 

Lowest Total Tax Burden States 

1. Wyoming: No income tax, low property taxes 
2. Alaska: No income tax, Permanent Fund Dividend 
3. Tennessee: No income tax, low property taxes 
4. Florida: No income tax, homestead exemptions 
5. South Dakota: No income tax, low overall burden 

Best Value Combinations 

• Delaware offers no sales tax and partial pension exemptions.
• Georgia provides substantial retirement income exemptions with reasonable property taxes. Both states balance tax benefits with quality healthcare and reasonable living costs. 

Social Security Taxation by State 

Zero-tax states automatically don’t tax Social Security benefits. Among states with income taxes, 27 states plus DC don’t tax Social Security benefits, including all pension-friendly states mentioned above. 

States that DO tax Social Security: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. However, most provide exemptions for lower-income retirees. 

Establishing Residency in Tax-Friendly States 

Documentation Requirements 

• Get a driver’s license and voter registration in your new state within 30 days of arrival.
• Bank accounts and primary address changes demonstrate intent to establish domicile. 
• Homestead exemptions in states like Florida require primary residence designation and can significantly reduce property taxes. 

Avoiding Audit Triggers 

• High-tax states like New York and California scrutinize departing residents. Maintain detailed records of your move date, establish clear ties to your new state, and limit time in your former state. 
• Professional guidance helps ensure proper residency establishment and avoids continued taxation by your former state. 

Healthcare Considerations 

Medicare Advantage 

Medicare works in all 50 states, but Medicare Advantage plans may have network limitations—research plan availability in your target state before relocating. 

State Healthcare Quality 

Florida leads in Medicare-approved facilities due to its large senior population. Texas offers excellent medical centers in major cities, and Tennessee provides quality healthcare at lower costs than the national averages. 

Cost of Living Analysis 

Below-Average Cost States 

• Tennessee: 11% below the national average
• South Dakota: 13% below the national average 
• Wyoming: 8% below the national average
• Mississippi: 15% below the national average 

Higher-Cost Tax-Free Options 

• Alaska: 28% above average (offset by Permanent Fund Dividend)
• Washington: 13% above average (offset by zero income tax)
• New Hampshire: 6% above average (no sales tax benefit) 

Common Relocation Mistakes 

• Incomplete residency establishment: Simply buying property isn’t sufficient. You must also establish voting registration, a driver’s license, and bank accounts in your new state. 
• Maintaining too many ties to high-tax former states can trigger continued tax obligations. Limit visits and maintain minimal financial presence. 
• Poor timing: The plan moves early in tax years to avoid complications caused by partial-year residents in multiple states. 
• Overlooking local taxes: Some municipalities impose additional income taxes. Research the total tax burden, not just state-level obligations. 

Your Next Steps for Tax-Free Retirement 

Immediate Actions (Next 30 Days) 

• Calculate current tax burden: Include federal, state, local, and property taxes for a complete picture. 
• Research target states: Focus on 2-3 options matching your climate preferences, family proximity needs, and healthcare requirements. 
• Visit potential destinations: To assess compatibility, spend extended time in target areas during different seasons. 

Planning Timeline 

• 12-18 months out: Begin researching and visiting target states while consulting with tax professionals familiar with multi-state issues. 
• 6-12 months out: Establish ties in your target state, including opening bank accounts and researching housing options. 
• Moving year: Execute the move early in the tax year when possible, maintain detailed relocation records, and update all official documents promptly. 

Professional Guidance Recommendations 

• Multi-state tax expertise is crucial for proper planning. The IRS recommends professional assistance for complex residency changes. 
• Estate planning updates ensure wills, trusts, and beneficiary designations reflect your new state’s laws and take advantage of available benefits. 

The Bottom Line on State Tax-Free Retirement 

Strategic relocation within the US offers significant tax savings while maintaining all federal benefits and familiar systems. Whether you choose complete tax elimination in Florida and Texas or pension-specific benefits in states like Illinois and Pennsylvania, proper planning can save thousands annually. 

Key insight: You don’t need international relocation to achieve substantial retirement tax savings. The US offers excellent tax-friendly options with Medicare coverage, Social Security access, and family proximity. 

Start by calculating your potential savings, then research states that match your lifestyle preferences. With proper planning and professional guidance, tax-free retirement is achievable without leaving the country. 

Ready to explore tax-free retirement states? Our tax specialists help Americans optimize retirement tax strategies while ensuring compliance with all state and federal requirements. 

Contact us, and one of our customer champions will gladly help. If you need specific advice on your tax situation, click below to get a consultation with one of our expat tax experts.