You’ve spent decades saving for retirement. You’ve contributed to your 401(k) is a popular employer-sponsored retirement savings plan in the United States, maxed out your IRA, and maybe even picked up a second home. Now, as you prepare to withdraw that hard-earned money, there’s one question that could make or break your budget: Will the state take a cut?

The short answer is yes-for most people. But not all states are created equal when it comes to taxing your retirement income. Some states treat your pension like any other paycheck, while others let you keep every cent. If you’re planning your next move or just trying to maximize your monthly cash flow, knowing which states don’t tax pensions can save you thousands.

The Nine States That Don’t Tax Pension Income

As of 2026, only nine U.S. states do not levy a state income tax on pension distributions at all. These states offer a clean slate for retirees who want their full retirement check to land in their bank account without state deductions.

Seven of these-Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming-don’t have a state income tax period. That means your wages, investments, and pensions are all free from state-level taxation. Tennessee and New Hampshire used to tax investment income but have since phased out those taxes, leaving pensions untouched.

States That Partially Exempt Pensions

If you’re not ready to move to Florida or Texas, don’t despair. Many states offer partial exemptions for pension income. These rules vary widely, so it’s crucial to understand how much of your pension might be shielded from state taxes.

For example, Illinois does not tax pension income from public employers if you meet certain residency requirements. Meanwhile, Michigan allows a deduction of up to $30,000 for single filers and $60,000 for married couples filing jointly for qualified pension income. This includes Social Security benefits, which are also exempt in Michigan.

Pennsylvania is another standout. It doesn’t tax Social Security benefits or most private pensions, making it attractive for retirees with diverse income sources. However, some government pensions may still be taxable depending on the source.

In Ohio, retirees can deduct up to $20,000 of pension income annually. The state also offers an additional deduction for military retirement pay. Georgia provides a $5,000 exemption for pension income, with an extra $5,000 for spouses over 65.

These partial exemptions can significantly reduce your tax burden, especially if your pension is your primary source of income. Always check your state’s specific rules, as they can change year to year.

Social Security Benefits: A Separate Story

While we’re talking about pensions, it’s worth noting that Social Security benefits are treated differently. At the federal level, up to 85% of your Social Security benefits can be taxable depending on your combined income. But at the state level, the rules are more favorable.

Currently, 31 states and the District of Columbia do not tax Social Security benefits at all. This includes all nine states that don’t tax pensions, plus many others like California, Colorado, and Massachusetts. If Social Security makes up a large portion of your retirement income, living in one of these states can provide significant peace of mind.

Why State Pension Taxes Matter

You might wonder why this matters so much. After all, isn’t retirement supposed to be relaxing? Well, consider this: the average retiree receives about $2,000 to $3,000 per month in pension income. If your state taxes that at 5%, you’re losing $100 to $150 every month-or $1,200 to $1,800 annually. Over a 20-year retirement, that adds up to tens of thousands of dollars.

And remember, state taxes are just one part of the equation. You’ll still owe federal income tax on your pension withdrawals unless they come from a Roth account. So choosing a state with no pension tax can help you keep more of what you’ve earned.

Moving for Tax Savings: Is It Worth It?

If you’re considering relocating to a state that doesn’t tax pensions, there are several factors to weigh beyond just the tax savings.

• Cost of Living: States like Florida and Texas have lower costs of living compared to places like New York or California. But housing prices in desirable areas can still be high.
• Healthcare Costs: Healthcare is often the biggest expense for retirees. Some states have better access to affordable healthcare than others.
• Property Taxes: While you may save on income tax, some no-income-tax states have higher property taxes. For instance, Texas has some of the highest property tax rates in the country.
• Sales Taxes: States without income taxes often rely more heavily on sales taxes. Check the local rates before making a move.

Also, consider the emotional side. Are you willing to leave friends and family behind? Will you enjoy the climate and culture of your new state? These intangible factors can be just as important as financial ones.

Other Retirement Income Sources to Consider

Pensions aren’t the only source of retirement income. Here’s how other common sources are taxed:

• Traditional IRAs and 401(k)s: Withdrawals are taxed as ordinary income at both the federal and state levels (unless you live in a no-income-tax state).
• Roth IRAs and Roth 401(k)s: Qualified withdrawals are tax-free at both the federal and state levels. This makes them incredibly valuable for retirement planning.
• Social Security Benefits: As mentioned earlier, 31 states don’t tax these benefits.
• Investment Income: Dividends and capital gains are taxed differently depending on the state. Some states conform to federal treatment, while others have their own rules.

Diversifying your retirement income sources can help you manage your tax liability. For example, having a mix of taxable and tax-free accounts gives you flexibility in how and when you withdraw funds.

Tax Planning Strategies for Retirees

If you’re not ready to move, there are still ways to minimize your state pension tax:

1. Delay Withdrawals: If possible, delay taking required minimum distributions (RMDs) until age 73 (as of 2026). This can help you stay in a lower tax bracket longer.
2. Roth Conversions: Convert traditional IRA or 401(k) funds to Roth accounts during years when your income is lower. This pays taxes now at a lower rate and avoids future RMDs.
3. Charitable Giving: Direct charitable donations from your IRA can reduce your taxable income while supporting causes you care about.
4. Work Part-Time: Earning a small amount of income can sometimes help you avoid Medicare premiums or push you into a different tax bracket strategically.

Working with a financial advisor who specializes in retirement planning can help you navigate these strategies effectively.

Final Thoughts on State Pension Taxes

Choosing where to live in retirement is one of the most impactful financial decisions you’ll make. If minimizing taxes is a priority, the nine states that don’t tax pensions should be at the top of your list. But remember, tax savings are just one piece of the puzzle. Consider the overall cost of living, healthcare access, and quality of life before making a move.

Even if you’re not moving, understanding how your state treats pension income can help you plan better. With careful strategy, you can ensure that your retirement years are financially secure and stress-free.