9 Pension-friendly States for Retirees

South Dakota is often cited as one of the most tax-friendly states for retirees.

The state has no state income tax, so pension income, Social Security income, military retirement pay, IRA distributions, and 401(k) withdrawals are tax free at the state level.

State and local taxes remain relatively low compared to national averages.

Florida remains a top retirement destination for tax reasons.There is no state income tax, meaning pension payments, Social Security retirement benefits, and other retirement income are not subject to state taxes.

While local sales taxes and property taxes exist, homestead exemptions and property tax relief programs help retirees reduce their tax bill.

Nevada offers a straightforward tax structure for retirees. The state does not tax retirement income, including pensions, Social Security benefits, or retirement account distributions.

The main tradeoff is higher sales tax rates, including local sales taxes, but the absence of income tax often outweighs that cost for retirees with limited taxable income.

Alaska combines tax-free income with unique benefits: There is no state income tax, and retirees do not pay taxes on pension income or Social Security benefits.

Property tax rates are moderate, and the annual Permanent Fund dividend can supplement retirement income, lowering overall tax implications.

New Hampshire minimizes taxes on retirement income.

The state does not tax wages, pension income, or Social Security income. Instead, it relies heavily on property taxes and local jurisdictions.

There is also no state sales tax, which helps retirees control everyday expenses despite higher property tax rates.

Pennsylvania is especially friendly to pension payments. The state does not tax pension income, Social Security benefits, or most retirement distributions, including traditional IRA and 401(k) withdrawals.

While property tax rates can be high in some areas, retirees often benefit from predictable income tax treatment.

Mississippi exempts most retirement income from state taxes.

Qualified pension income, Social Security benefits, and other retirement income are tax exempt for eligible retirees.

Combined with a lower cost of living, this reduces the overall tax burden for people on fixed income.

West Virginia has been improving its treatment of retirement income. The state is phasing out its tax on Social Security benefits, and while certain public pensions (like West Virginia police pensions) are exempt from state tax, most other retirement income in West Virginia remains taxable.

Property taxes are among the lowest in the nation, helping offset remaining income tax liability.

Iowa has significantly reduced taxes on retirement income. Recent tax laws expanded exemptions so that most pension income, IRA distributions, and other retirement income are no longer taxed.

This change lowered the effective tax rate for many retirees.

Not all states tax retirement income the same way.

Some states tax pensions but exempt Social Security income. Others tax Social Security benefits above certain income limits based on adjusted gross income and filing status.

Understanding how states tax Social Security, pensions, and other retirement income is essential when planning where to retire.

Income tax is only one piece of the puzzle. Property taxes paid, sales tax rates, estate tax, and inheritance tax rules also affect retirees.

Some states impose estate and inheritance taxes, while others avoid those taxes entirely, which can significantly impact long-term retirement planning.

Tax laws change frequently. Before choosing a state, consult a tax advisor or financial advisor to review state and local taxes, retirement plan withdrawals, and potential tax credits.

The most pension-friendly states are the ones that align with your income sources, spending habits, and long-term goals.

We created this article in conjunction with AI technology, then made sure it was fact-checked and edited by a HowStuffWorks editor.