Best States to Retire for Taxes 2026

Why Your State Choice Drives Retirement Tax

Your federal tax on retirement income is the same in every state. The difference is state tax on three income streams: Social Security benefits, pension payments, and IRA / 401(k) withdrawals. States treat these three very differently — from a complete exemption to full taxation at the top marginal rate.

The right state can save a couple tens of thousands of dollars over a retirement, which is why "retiring to a tax-friendly state" is one of the most searched — and most consequential — money decisions people make.

Tier 1: Nine No-Income-Tax States

These nine states impose no state income tax at all, so Social Security, pensions, and IRA / 401(k) withdrawals are all completely untaxed:

• Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming — no income tax, period.
• New Hampshire — no tax on wages; it taxes only interest and dividends (and that tax is being phased out).

Florida, Texas, and Nevada in particular are retirement magnets for exactly this reason. The trade-off: some of these states lean on higher property and sales taxes, so the "free" income tax is not always free in total.

Tier 2: Income-Tax States That Spare Retirees

Several states levy an income tax but deliberately shelter retirement income:

• Illinois — the standout. It has a 4.95% flat tax, but exempts all retirement income: Social Security, pensions, and IRA / 401(k) distributions are completely untaxed.
• Pennsylvania and Mississippi — do not tax Social Security or most pension income, though they may tax a portion of IRA withdrawals.
• Many other states — exempt Social Security (most do), even if they tax pension and IRA income.

Illinois is the quiet winner for retirees who want to stay in a populous state with big-city amenities and still pay zero state tax on retirement income.

Tier 3: States That Tax Retirement Income

At the other end, some states treat IRA and 401(k) withdrawals and pensions as ordinary income at full progressive rates:

• California — does not tax Social Security, but taxes IRA / 401(k) withdrawals and pensions at rates up to 13.3%.
• New York — exempts Social Security and up to $20,000 of pension income, but taxes IRA withdrawals at rates up to 10.9% (plus city tax in NYC).
• Connecticut, Minnesota, Vermont — partially tax Social Security (with income thresholds) and tax most other retirement income.

For a retiree with a large traditional IRA, living in a Tier 3 state versus a Tier 1 state can mean a five-figure difference every single year.

What the Difference Looks Like in Dollars

Take a retiree still working part-time at $40,000 a year (single, no retirement contribution). The state choice alone moves the take-home:

At $40,000 the gap is modest. But this is only part-time wages. The real divergence comes from large IRA withdrawals — a retiree pulling $80,000 a year from a traditional IRA pays nothing to Texas or Florida, but thousands to California or New York. That is the number to model before you move.

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