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Retirement Tax Havens: Where to Live to Keep More of Your Hard-Earned Cash

Benjamin Franklin’s famous quote about death and taxes being the only certainties in life may not hold entirely true for retirees. While taxes are still a reality, some states offer a more tax-friendly environment for retirees, allowing them to keep more of their hard-earned cash.

13 States with No State Taxes on Retirement Income

If you’re retired, you may be surprised to learn that 13 states won’t tax your Social Security, 401(k), individual retirement account (IRA), or pension income. These states are:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming
• Illinois
• Iowa
• Mississippi
• Pennsylvania

The Fine Print: Gotchas to Watch Out For

While these states offer a tax-free haven for retirees, there are some exceptions to be aware of. New Hampshire, for instance, levies taxes on dividends and interest, although these taxes will be phased out by 2024. Washington state taxes capital gains, and some states have specific rules about early distributions from retirement accounts.

States with Partial Tax Exemptions

Some states offer partial tax exemptions on retirement income. For example:

• Alabama taxes retirement income from 401(k) plans and IRAs but not Social Security benefits or pension income.
• Hawaii doesn’t tax retirement distributions from private or public pension plans, unless retirees contribute to the plans.
• Pennsylvania taxes early distributions from retirement accounts.

Social Security Benefits: A Silver Lining

Even if you live in a state that taxes retirement income, there’s good news: many states don’t tax Social Security benefits. The following states exempt Social Security benefits from taxation:

• Alabama
• Arizona
• Arkansas
• California
• Delaware
• Georgia
• Hawaii
• Idaho
• Indiana
• Kansas
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Missouri
• Nebraska
• New Jersey
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Oregon
• South Carolina
• Virginia
• Wisconsin

The Bottom Line: Taxes Are Inevitable, but You Can Minimize Them

While taxes are still a reality, retirees can reduce their tax bill by choosing wisely where they retire. By understanding the tax laws in different states, you can make informed decisions about where to live and how to manage your retirement income.