In the event you’re contemplating relocating to a unique state while you retire, you would possibly need to take into consideration how your revenue will probably be taxed within the state you intend to maneuver to.
State revenue taxes can vary as excessive as 13.3% – until you reside in a state that doesn’t tax retirement revenue. 😊
9 states impose no revenue tax in any respect.
In case you are a retiree, you may transfer to any a kind of states with out concern for the state revenue tax legal responsibility in your retirement revenue. Nonetheless, there are a lot of different states that exempt revenue from particular retirement sources, like Social Safety, pensions, navy pensions, and distributions from outlined contribution retirement plans.
Learn Extra:
Desk of Contents
- 8 States That Don’t Gather Earnings Tax
- 13 States That Don’t Tax Outlined Contribution Plan Distributions
- What about Roth IRA distributions?
- 15 States That Don’t Tax Pension Earnings
- 32 States That Don’t Tax Navy Pensions
- 37 States That Don’t Tax Social Safety Earnings (Plus The District of Columbia)
- Is it Higher to Stay in a State that Doesn’t Tax Retirement Advantages?
8 States That Don’t Gather Earnings Tax
9 states presently don’t have any revenue tax. Since they don’t tax revenue, that additionally means they don’t tax retirement revenue.
The 9 states with no revenue tax embrace:
- Down
- Florida
- New Hampshire*
- Nevada
- South Dakota
- Tennessee
- Texas
- Wyoming
*New Hampshire presently has a 3% revenue tax levied on curiosity and dividend revenue obtained in 2024. Nonetheless, this tax has been repealed beginning January 1st, 2025.
13 States That Don’t Tax Outlined Contribution Plan Distributions
As is the case with federal revenue tax, most states tax distributions from outlined contribution plans.
These embrace conventional, SEP, and SIMPLE IRAs; 401(okay), 403(b), 457, and Thrift Financial savings Plans (TSPs). Nonetheless, 13 states don’t impose tax on outlined contribution plan distributions. (Supply: Bankrate)
Included are the 9 “no revenue tax” states with no revenue tax, together with these 4 extra states that don’t tax outlined contribution plan distributions:
- Illinois
- Iowa
- Mississippi
- Pennsylvania
What about Roth IRA distributions?
Usually talking, states comply with the identical tax remedy with Roth IRA distributions because the IRS. However since every state has its personal tax code, you’ll have to examine together with your tax preparer or tax software program program to find out if (and when) Roth IRA distributions may be taken tax-free.
* Notice that in researching for this text, we couldn’t establish a single authoritative supply confirming conclusively that Roth IRA distributions may be taken tax-free in all 50 states and the District of Columbia.
15 States That Don’t Tax Pension Earnings
A complete of 15 states don’t tax pension revenue. Along with the 9 states with no revenue tax, six extra states impose no revenue tax on pension revenue (also called outlined profit retirement plans). (Supply: Kiplinger)
- Alabama
- Hawaii
- Illinois
- Iowa
- Mississippi
- Pennsylvania
32 States That Don’t Tax Navy Pensions
A complete of 32 states don’t tax navy pensions. Along with the 9 states with no revenue tax, the next 23 states don’t tax navy pensions. (Supply: MyArmyBenefits, The official navy advantages web site of the U.S. Military, Desk of 2021 State Taxes and Navy Retired Pay):
- Alabama
- Arkansa
- Arizona
- Connecticut
- Hawaii
- Illinois
- Iowa
- Kansas
- Louisiana
- Maine
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Pennsylvania
- Utah
- West Virginia
- Wisconsin
The next 16 states present partial exemption from state revenue tax on navy pensions:
- Colorado
- Delaware
- Georgia
- Idaho
- Indiana
- Kentucky
- Maryland
- Missouri
- Montana
- Nebraska
- New Mexico
- Oklahola
- Oregon
- Rhode Island
- South Carolina
- Virginia
Solely three jurisdictions present no exemption for navy pensions:
- California
- The District of Columbia
- Vermont
37 States That Don’t Tax Social Safety Earnings (Plus The District of Columbia)
A complete of 37 states, plus the District of Columbia, exempt Social Safety advantages from taxation. That features the next 28 states and the 9 that impose no revenue tax. (Supply: The Tax Basis):
- Alabama
- Arizona
- Arkansa
- California
- Delaware
- District of Columbia
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- New Jersey
- New York
- North Carolina
- Ohio
- Oklahola
- Oregon
- Pennsylvania
- South Carolina
- Virginia
- Wisconsin
The remaining 13 states present partial tax exemption of Social Safety revenue, both primarily based on age or revenue degree or with another type of modification:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
Is it Higher to Stay in a State that Doesn’t Tax Retirement Advantages?
All issues being equal, retirees are financially higher off dwelling in states that don’t tax retirement advantages. However as everyone knows, all issues are seldom equal. So whereas state revenue taxes are an essential consideration, they shouldn’t be the one deciding issue on the place it’s best to reside out your golden years.
It’s essential to additionally take into account different forms of taxes, akin to gross sales and actual property taxes.
For instance, New Hampshire is among the states with no revenue tax, but it surely has among the highest property taxes within the nation. In that case, the good thing about not paying revenue tax could also be offset by larger property taxes.
Housing costs are one other consideration. The state of Washington has no revenue tax, however the median value of a home is $552,000. The price of buying a house in Washington state may simply cancel out the good thing about tax-free retirement revenue.
Insurance coverage is one other issue. Florida has no revenue tax and is a well-liked vacation spot for retirees. However, the state additionally has the best automobile insurance coverage premiums within the nation, at a mean of $2,694 per 12 months, and the best common house owner’s insurance coverage premiums, at $10,996 per 12 months.
All of that is to say that whereas the revenue tax influence on retirement is essential, it’s only one piece of the puzzle. Dwelling in a state that doesn’t tax retirement revenue is a significant plus, however it may be offset by different prices that aren’t simply averted.
