13 Tax-Friendly States Where Retirees Keep More of Their Money

Looking for the best states to retire without giving half your income to the tax man? You can’t avoid taxes entirely, but you can move somewhere that lets you keep more of your hard-earned retirement income.

For many retirees, taxes are a bigger deal than they expect. The average household has just $200,000 saved by age 65, which works out to about $8,000 a year using the 4% rule. Social Security fills some of the gap—but every extra dollar lost to taxes is a dollar you can’t use for travel, hobbies, or spoiling the grandkids.

The good news? Some states don’t tax retirement income at all. Others skip taxes on Social Security or pensions, and a few avoid income taxes altogether. Knowing where these states are can help you stretch your nest egg further and make smarter relocation decisions.

States That Don’t Tax Social Security

Social Security is the backbone of most retirees’ budgets, and the majority of states leave it alone. Only these nine states tax Social Security benefits:

• Colorado

• Connecticut

• Minnesota

• Montana

• New Mexico

• Rhode Island

• Utah

• Vermont

• West Virginia (ending the tax after 2025)

At the federal level, some retirees still owe taxes on their benefits based on total income, but state-level relief can go a long way

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States That Don’t Tax Pension Income

If you’re lucky enough to have a pension, you’ll want to protect it. These 15 states don’t tax pension payouts (though they may tax other types of retirement withdrawals):

• Alabama*

• Alaska

• Florida

• Hawaii*

• Illinois

• Iowa

• Mississippi

• Nevada

• New Hampshire

• Pennsylvania

• South Dakota

• Tennessee

• Texas

• Washington

• Wyoming

* Alabama and Hawaii may still tax some non-pension retirement distributions.

The 13 States That Don’t Tax Any Retirement Income

These are the states where Social Security, pensions, IRAs, and 401(k) withdrawals all escape state income taxes.

Nine with no income tax at all:

• Alaska

• Florida

• Nevada

• New Hampshire (2025 onward)

• South Dakota

• Tennessee

• Texas

• Wyoming

• Washington*

* Washington has a 7% capital gains tax on profits over $270,000 but no other income tax.

Four more with selective taxes, but not on retirement income:

• Illinois

• Iowa (ages 55+)

• Mississippi

• Pennsylvania

Why You Shouldn’t Pick a State Based on Taxes Alone

It’s tempting to look at tax rates and stop there—but the real cost of living in retirement includes housing prices, healthcare quality, weather risks, and insurance costs.

• Alaska is tax-free but remote and expensive.

• Florida’s sunshine comes with hurricane season and rising home insurance.

• Pennsylvania offers tax breaks on retirement income but high property taxes in some areas.

A tax-friendly state can still drain your wallet if costs in other categories are high. The best strategy? Compare total expenses, not just income taxes, before making your move.

Bottom Line

If you want to maximize your retirement income, these 13 states offer some of the most tax-friendly policies in the country. But before you pack the moving truck, weigh the full picture—cost of living, healthcare, housing, and overall quality of life.

Taxes are important, but they’re just the tip of the iceberg when it comes to finding your perfect retirement spot.