After a lifetime of adding to Social Security, building up a retirement strategy, or earning a pension, you might be bracing for a huge tax hit in retirement. Now you're ready to punch your last time card and your state has its hand out for some tax dollars too.

Or does it? While federal taxes are inescapable, some states are much kinder than others when it comes to taxing retirement earnings. Others do not tax it at all.

Key Takeaways

• Illinois, Iowa, Mississippi, and Pennsylvania are considered to be the most tax-friendly states for retirees.Thirty-eight states do not tax
• Social Security income.Thirty-seven states don't tax most military retirement pay.Fifteen states
• exempt pension earnings from state taxes.Nine states have no earnings tax at all.
• States That Don't Tax Retirement Earnings Arkansas A male fishing the Arkansas River. Getty Images/Samuel Wells Arkansas uses senior citizens a break by exempting as much as$6,000 per year from public and private employer-sponsored pension and IRA circulations gotten after the age

  of 59 1/2 or since of death or special needs. It also doesn't tax Social Security earnings or tax military retirement pay at all. Plus, Arkansas imposes no estate or estate tax, so your heirs will not face extra tax concerns. Illinois Courtesy of Enjoy Illinois is another state that gets along to retired people. The state excuses pension income, 401(k )and IRA withdrawals, Social Security advantages, and military retirement pay from state taxes. However, Illinois does tax other investment incomes and taxes estates and inheritances

  . Iowa A colorful fall scene in Burlington, Iowa. Travel Iowa Tourist Iowa just recently upgraded its tax laws to be more retirement-friendly. As of January 2023, the state no longer taxes pension, 401 (k), or IRA earnings for homeowners over age 55. If you certify, you can enjoy tax-free retirement income starting at age 55.

  Two years later, on Jan. 1, 2025, the state transitioned from a graduated tax system(leading rate of 5.7%)to a flat tax system, with a rate of 3.8%. Likewise, the state no longer has an inheritance tax since 2025. Mississippi Gulfport, Mississippi. Joe Raedle/ Personnel/ Getty Images Mississippi spares retirement plan distributions, pension income, Social Security earnings, and military retirement pay

  from state taxes. Early distributions from retirement strategies generally do not get approved for exempt status. This state does not have an estate or inheritance tax, either. New Hampshire Arethusa Falls is the most remarkable waterfall in New Hampshire, so make it a”needs to ” on your trip. Media picture thanks to the New Hampshire Department of Travel and Tourism New Hampshire doesn't tax Social Security or pension earnings although it does tax retirement account circulations that qualify as interest or dividends. This state does not have an earnings tax on made salaries and many circulations count as earnings so they're exempt. Especially, New Hampshire reversed its tax on interest and dividends as of Jan. 1, 2025, making it a lot more attractive for senior citizens.

  Estate and inheritance taxes are also missing in New Hampshire. Pennsylvania Pocono Lake, Pennsylvania. Roy Morsch/Getty Images Senior citizens in Pennsylvania gain from a lack of state taxes on Social

  Security, pension earnings, and retirement strategy circulations. In addition, Pennsylvania has a flat income tax rate of 3.07%on made earnings, one of the lowest in the nation. Eligible retired people can likewise access a residential or commercial property tax/rent rebate program, adding to the state's appeal. Important Pennsylvania

  provides a home tax/rent rebate program to senior citizens. South Carolina South Carolina's UFO Welcome Center is a welcome reprieve for UFO lovers. Rachid Dahnoun/Aurora/Getty Images South Carolina is another

  state that does

  n't tax Social Security income

  . As of tax year 2022, all military retirement pay is exempt from state earnings taxes. For those over age 65, the very first$10,000 of retirement strategy earnings is exempt from state tax, and the exemption drops to$3,000 for more youthful retired people. South Carolina also uses a$ 15,000 state tax deduction for those 65 and older. States Without Any Earnings Tax If you live and/or work in among the following 9 states, you will not need to stress over state earnings taxes on any

  retirement income: Alaska Florida Nevada New Hampshire South Dakota Tennessee

  Texas Washington(taxes only capital gains of high earners)Wyoming These states use automatic tax relief for senior citizens by not taxing any retirement income. It's also worth noting that some of these states may still impose other taxes, such as property taxes or sales taxes, to offset the absence of income taxes

  . At What Age Do You Stop Paying Taxes on Your Pension? In the U.S., there is no age you stop paying taxes on your pension as taxes are not identified by age. The majority of pensions will undergo federal income tax and state income tax, depending upon the state. Furthermore, at age 73, you need to begin

  taking required minimum distributions from tax-deferred accounts. How Can I Reduce Taxes in Retirement? There are a few techniques you can integrate to help in reducing taxes in retirement. You should start by

  • preparing your withdrawals strategically.
  • You need to initially withdraw from taxable accounts and after that tax-deferred ones
  • , like 401 (k)s and Individual retirement accounts. This allows tax-advantaged accounts to grow longer while keeping taxable income lower early on.Keep in mind that required minimum distributions(RMDs )begin at 73, so transforming some standard IRA money to a Roth individual retirement account beforehand can reduce future tax burdens because Roth IRAs are exempt to RMDs.Consider delaying Social Security benefits till 70
    

    , as that will increase your advantages but likewise keep taxes lower early on. Contributing to charities likewise minimizes taxes and can be an option for you. Lastly, residing in a tax-friendly state will decrease your taxes as will particular medical reductions. How Is Social Security Taxed in Retirement? Social Security can be taxed in retirement depending on your income. If your combined income, which includes Social Security benefits, nontaxable

    interest, and adjusted gross earnings, is above a particular limit, you will be subject to income tax. For single filers, if your combined earnings is between$25,000 and$34,000, as much as 50%of your benefits may be taxed. If above$ 34,000, up to 85%of your advantages may be taxed. The Bottom Line State taxes on retirement income vary commonly, but numerous states make life simpler for retired people by offering considerable tax breaks on Social Security, 401 (k)withdrawals, IRA distributions, and pensions. If you reside in one of these states– or better yet, one of the 9 states with no income tax– you'll keep more of your hard-earned retirement earnings. While tax laws can change, it is necessary to think about these elements when choosing where to retire. But there's more to think about than simply taxes when you choose where to retire, so think about speaking to a financial advisor to discover the ideal plan for you.

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