Let’s be honest, whether you’re still working or enjoying retirement, paying income taxes isn’t exactly a thrilling task. While contributing to the government’s revenue is our civic duty, most people naturally prefer to minimize their tax liabilities.
Here’s some exciting news for both current and future retirees: there are several states that don’t tax any retirement income at all. You shouldn’t rush to relocate solely to reduce your tax bill, but it’s worth considering this advantage as part of your broader life plans.
States That Don’t Tax Retirement Earnings
As of this year, there are nine U.S. states that don’t levy income taxes on retirees’ earnings—simply because they don’t impose income taxes on anyone. These states rely on other sources of revenue, such as sales tax and property tax, to fund their budgets. Here are the nine income-tax-free states:
- Florida
- Texas
- Washington
- Alaska
- Nevada
- South Dakota
- Wyoming
- Tennessee
- New Hampshire
Consider how these states might fit into your life’s big picture, especially if you’re looking to optimize your retirement strategy.
Exploring the allure of states with no state income tax can be fascinating, particularly for retirees and those seeking financial advantages. Here’s a closer look at some of these states, each offering its own unique benefits.
States Without State Income Tax
These states are known for not imposing a state income tax, making them attractive for residents looking 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 correctly listed here. Previously, the state did tax dividend and interest income, which was a significant concern for retirees relying on these funds. However, starting in 2025, this tax has been abolished, transforming New Hampshire into a truly state-tax-free haven for all residents. It’s important to note that while state income tax is not a concern, residents might still face federal, city, or county taxes.
States With Exceptions for Retirees
While some states do levy a regular income tax, they offer exceptions for retirees, providing financial relief in varying 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 lead to a more informed decision about where to call home during retirement, offering financial benefits that align with your lifestyle needs.