State Income Taxes on Retirement Income: The 2026 State-by-State Guide

Federal income tax gets most of the attention in retirement planning. But your state's treatment of 401(k) withdrawals, pension income, IRA distributions, and Social Security can add — or eliminate — thousands of dollars in annual taxes. Fourteen states impose zero tax on retirement income of any kind. Eight states still tax Social Security. And one state charges up to 13.3%. Here's where each state stands in 2026 and what it means for your income plan.

Why state taxes deserve a place in your income plan

At the federal level, a married couple over 65 with $80,000 in IRA withdrawals and $40,000 in Social Security faces a well-understood tax picture — provisional income, bracket management, IRMAA. What often goes unmodeled is the state layer sitting on top of that.

California, for example, taxes IRA and 401(k) withdrawals at rates up to 13.3%. Social Security is exempt at the state level in California, but a single retiree drawing $75,000/year from a traditional IRA owes roughly $3,000–$3,500/year in California state income tax on top of their federal bill. Over a 25-year retirement, that's approximately $80,000 — not counting the compounded return on dollars that left the portfolio early.¹

The same withdrawal in Florida, Texas, or Nevada: zero state income tax.

For retirees already in a no-tax state, this is background noise. For retirees in high-tax states — or those choosing where to retire — state tax policy is a genuine six-figure variable worth modeling explicitly.

The four tiers: how states treat retirement income in 2026

Tier 1: The 9 states with no income tax

In these states, all retirement income — IRA withdrawals, 401(k) distributions, pension payments, Social Security, dividends, interest — flows out of your portfolio with no state income tax deducted.

• Alaska — no income tax; also pays an annual Permanent Fund dividend to residents (~$1,700/person in recent years)
• Florida — no income tax; does have property taxes that vary significantly by county
• Nevada — no income tax; property and sales taxes apply
• New Hampshire — fully phased out its interest-and-dividends tax as of January 1, 2025; no income tax in 2026²
• South Dakota — no income tax; no estate or inheritance tax either
• Tennessee — eliminated its Hall Tax (dividends and interest) in 2020; no income tax on any retirement income
• Texas — no income tax; higher property taxes than many states
• Washington — no income tax; note the capital gains tax enacted in 2022 (7% on long-term gains above $270,000 — does not apply to most retirement account distributions)
• Wyoming — no income tax; low overall tax burden

Tier 2: States that exempt most retirement income

These states have income tax — but by design or by statute, they exempt most or all retirement income for residents who qualify. The tax bill on a $70,000 IRA withdrawal can be roughly the same as in Florida.

Illinois (4.95% flat rate — but retirement income is fully exempt)

Illinois taxes earned income and most other income at a flat 4.95% rate. But the state fully exempts all retirement income for residents: Social Security, pensions, 401(k) and IRA distributions, and income from annuities. No age requirement. A retiree living on $90,000/year entirely from IRA withdrawals pays zero Illinois state income tax on that income.³

Pennsylvania (3.07% flat rate — retirement income fully exempt)

Pennsylvania exempts all retirement income for residents who have reached retirement age or are receiving disability benefits. This covers Social Security, pensions, 401(k) and IRA distributions, and annuities. The 3.07% flat rate applies to wages and self-employment income, but most retirees living on portfolio income pay zero Pennsylvania state income tax.³

Iowa (up to 6.0% rate — fully exempt at age 55 and older)

Iowa enacted legislation effective 2023 that exempts all retirement income — pensions, Social Security, 401(k)/IRA distributions — for taxpayers age 55 and older. Before 2023, Iowa taxed most retirement income. Residents under 55 with early retirement income still face standard Iowa rates.³

Mississippi (up to 5.0% rate — retirement income exempt at 59½+)

Mississippi exempts "qualified retirement income" — which includes Social Security, PERS distributions, 401(k) and IRA withdrawals, and annuity payments — for residents who have reached age 59½. Below that age, distributions may still be taxable.

Michigan (4.25% rate — major expansion starting 2026)

Michigan's Public Act 4 of 2023 phases in expanded retirement income exemptions through 2026. By 2026, Michigan exempts up to $67,610 (single) / $135,220 (joint) of total pension and retirement income. Most Michigan retirees with typical IRA balances will owe little to no state income tax on their retirement distributions starting in 2026.⁴

Eight states still taxing Social Security in 2026

The majority of states — including high-tax California, New York, and New Jersey — have always exempted Social Security from state income tax. But 8 states still impose state tax on SS benefits as of 2026. West Virginia became the latest to exit this list, having fully phased out its Social Security tax effective January 1, 2026.⁵

Important context: most of the 8 states above provide full or substantial exemptions for retirees with moderate incomes — the SS tax burden falls primarily on higher-income retirees. The real exposure is in Minnesota and Vermont, where the income thresholds for exemption are lower and the marginal rates are high.

High-burden Tier 4 states: what the tax actually costs

The Tier 4 states apply standard income tax rates to most retirement income, with the same brackets as working residents. The states with the highest exposure for retirees:

California (up to 13.3%)

California is an outlier: it has the highest marginal income tax rate of any state, no broad exemption for retirement income, and a standard deduction for joint filers of roughly $9,600 — far below the federal $32,200. The only notable exemption: Social Security is fully exempt at the California level.

Illustrative example: A single retiree drawing $75,000/year from a traditional IRA faces approximately $3,000–$3,500 in California state income tax per year on that income, even after the standard deduction. Over a 25-year retirement, that's $75,000–$87,500 in total additional state tax versus living in a Tier 1 state — plus the compounded return on those dollars had they stayed invested.

For retirees with larger portfolios — $2M+ drawing $120,000/year — the California bill approaches $7,000–$8,000 per year, increasing the lifetime comparison further.

Oregon (up to 9.9%)

Oregon taxes most retirement income at rates up to 9.9%. Social Security is exempt. The state provides a retirement income credit ($0–$125/year) that helps lower-income retirees only marginally.

Minnesota (up to 9.85%)

Minnesota's high rates apply to most retirement income with limited exemptions. Additionally, it is one of the 8 states that still taxes Social Security for higher-income residents. A couple in the upper-middle income range can face both federal and Minnesota SS taxation simultaneously.

New York (up to 10.9% — but public pensions and a $20,000 exclusion help)

New York's treatment is more nuanced than California's. State and local government pensions from New York employers are fully exempt. For private pensions, 401(k) distributions, and IRA withdrawals, there's a $20,000 annual exclusion for residents age 59½ and older. Income above $20,000 is taxed at standard New York rates. Social Security is fully exempt. A retiree with $70,000 in IRA withdrawals faces NY tax on $50,000 of that income — meaningfully lower than California's treatment but not zero.

The relocation question: when the math supports a move

Relocating in retirement to reduce state taxes is a real strategy — but it requires honest accounting of the full picture, not just the income tax rate.

What you gain

The most straightforward gain: if you're currently drawing $80,000/year from an IRA in a Tier 4 state at a 6% marginal rate, moving to Florida eliminates roughly $4,800/year in state income tax. Over 20+ years, that compounds into a meaningful number, especially if the redirected amount stays invested.

What you offset it against

• Property taxes. Florida and Texas have no income tax, but their property tax rates can be substantially higher than states like California (which has Proposition 13 caps) or New York (which has STAR exemptions for seniors). A $600,000 home in Austin, TX carries roughly $12,000–$15,000 in annual property taxes — potentially more than you'd owe in California state income tax on the same withdrawal amount.
• Cost of living. Housing costs, healthcare access, and proximity to family are often the dominant factors in retirement quality of life.
• Estate taxes. Some no-income-tax states have estate or inheritance taxes. Washington state has an estate tax with a $2.193 million exemption (2026). Massachusetts has an estate tax at $2 million. Oregon taxes estates over $1 million.
• Moving costs and transition friction. Selling a home, buying or renting in a new location, establishing residency — one-time costs that reduce the payback period on ongoing tax savings.

How this interacts with your retirement income strategy

State taxes aren't just about the headline rate — they interact with the other levers in your income plan:

• Roth conversion windows. If you're in California pre-move, Roth conversions are taxed at California rates on top of federal rates. Converting $50,000 to Roth in a year you're still a CA resident costs an additional ~$3,000–$4,500 in California tax versus doing the same conversion after establishing Florida domicile. For large conversion windows, the timing of residency change matters.
• Tax-efficient withdrawal order. States like Pennsylvania and Illinois that fully exempt IRA/401(k) withdrawals change the federal-only calculus significantly. In PA, there's no state reason to prefer Roth distributions over traditional ones — both are exempt. In California, Roth is marginally better on the state dimension (qualified Roth distributions are not taxable CA income), but the SS exemption means your SS income doesn't create a state double-tax problem.
• Pension income. If you have a pension — particularly a government pension — state treatment is highly variable. New York fully exempts NY government pensions but taxes most private pension income above $20K. Alabama fully exempts state and federal pensions. Georgia exempts the first $65,000 of retirement income for people 65+. Each state has its own rules.
• RMD planning. Required minimum distributions are just another form of IRA income. In a Tier 1 or Tier 2 state, RMDs carry no state tax burden on top of the federal. In California, each dollar of RMD is taxed at the applicable state rate with no exemption.

What a fee-only advisor models for state tax exposure

A specialist in retirement income planning treats state income tax as a quantifiable variable in your income plan — not a footnote. The analysis typically includes:

• Current-state tax projection by year, showing how your state bill grows as RMDs kick in and portfolio withdrawals increase.
• Net-of-tax income floor comparison: what does each dollar of withdrawal net you after federal + state? This affects whether you need to draw more to hit spending targets.
• Roth conversion window sizing adjusted for your state's treatment. In a high-tax state, the federal case for converting in low-income years is joined by a state-tax case; in an exemption state, the calculus changes.
• Relocation scenario modeling: if you're considering a move, the advisor models the full picture — income tax savings, property tax changes, estate tax exposure, and the effect on your withdrawal rate and portfolio longevity.
• Residency establishment guidance: for moves out of aggressive-enforcement states like California, advising on the documentation and timing to cleanly establish domicile.

Sources

1. Tax Foundation — 2026 State Income Tax Rates and Brackets. California top marginal rate 13.3%; state income tax structures for all 50 states. Tax Foundation is the authoritative non-partisan source for state tax policy data.
2. Kiplinger — States That Won't Tax Your Retirement Income in 2026. Confirmed list of 9 no-income-tax states including New Hampshire (I&D tax repealed January 1, 2025) and Tennessee (Hall Tax repealed December 31, 2020). Tier 2 state exemptions confirmed.
3. AARP — 13 States That Don't Tax IRA and 401(k) Distributions. Illinois, Pennsylvania, Iowa (55+), and Mississippi (59½+) exemptions for IRA and 401(k) distributions confirmed.
4. 401(k) Specialist Magazine — These 13 States Won't Tax 401(k)s in 2026. Michigan Public Act 4 of 2023 expansion: $67,610 single / $135,220 joint retirement income exemption effective 2026.
5. Kiplinger — States That Tax Social Security Benefits in 2026. Confirmed 8 states taxing SS in 2026 (CO, CT, MN, MT, NM, RI, UT, VT). West Virginia completed full phase-out January 1, 2026. State-specific income thresholds for exemptions confirmed.

State tax laws change frequently. Information reflects 2026 tax year based on sources verified May 2026. State-specific rules (exemption amounts, age requirements, phase-out thresholds) may change; verify with your state's department of revenue or a tax professional before making residency decisions.