You worked hard for your money and to have the chance to retire. If you haven’t retired yet, you’d certainly like to know you won’t have all your retirement income eaten away by greedy state governments.
Fortunately, there are eight states that don’t tax your retirement income. Federal income tax may still be owing, but at least these states don’t put their hands on your hard-earned retirement income.
Eight States That Won’t Tax Your Retirement Income Distributions
Whether you have a pension coming in, an IRA, a 401k, or 403b, these states won’t touch any income coming to you from them.
7. South Dakota: Led by Republican Governor Kristi Noem, South Dakota keeps its hands off your retirement income and stays in its lane.
6. Tennessee: The Volunteer State allows people to retire in dignity without having their retirement income taxed or touched in any way.
5. Florida: The free state of Florida lets you live out your retirement days without having to worry about losing your money.
4. Nevada: Nevada may be famous for Las Vegas, but it also has a strong libertarian streak. Not everyone is losing money in casinos because many retirees find its zero-tax situation ideal for their future.
3. Texas: The Lone Star State has always had a deep respect for hard work and letting people keep the fruits of their labor. That extends to not touching retirement income streams.
2. Wyoming: Wyoming joins the club of the freest states for retirees, with no income tax on retirement income distributions.
1. Washington: Washington is a blue state, but it still has some of that frontier freedom and this extends to nixing any income tax on retirement income.
Federal income tax on my military retirement pay is ridiculous. #EndTheFed
— Montgomery Granger (@mjgranger1) February 6, 2023
Taking a Look at the Big Picture
State taxes on retirement income are not the only thing retirees need to think about, of course. Quality of life, safety, and proximity to family and health services are also very key.
On the financial side, it’s also important to take into account sales tax, property tax, and other taxes that also vary from state to state.
The Granite State of New Hampshire has zero income tax, but does put a tax on interest, which can end up having a heavy impact on interest earned through your retirement funds.
Other states are also trying to be more attractive to people who want to retire, including Illinois, which applies a 4.95% flat tax and avoids taxing IRAs and 401ks.
Pennsylvania has a flat tax of 3.07% on income as a whole, but avoids specifically or additionally targeting your retirement income in any additional way.
Most retirement plan distributions are subject to income tax and may be subject to an additional 10% penalty if you take a withdrawal before age 59½. Fortunately, there are some exceptions to avoid the penalty but there are strict rules. pic.twitter.com/fcSB1yLSVn
— BMC CPAs (@BMC_CPAs) February 8, 2023
Knowing Where You Stand
Various states not only tax your retirement income, but they also hit your Social Security benefits.
The states that are harder on retirees are as follows: West Virginia, Utah, Rhode Island, Kansas, Nebraska, Minnesota, Colorado, Connecticut, Missouri, New Mexico, Vermont, and Montana.
Various states have other rules as well, such as making an exception for military retirement money coming in. 21 states don’t tax it.This article appeared in FreshOffThePress and has been published here with permission.