- Nine U.S. states impose no income tax on any retirement distributions including 401(k)s and pensions.
- For 2026, Michigan and Mississippi significantly expanded exemptions for retirement and pension income.
- Eight states still tax Social Security benefits in 2026, though many offer income-based credits.
The main distinction is simple: some states impose no income tax at all, while others tax pensions, IRA withdrawals, and sometimes even Social Security.
For tax year 2026 returns, filed in 2027, that gap can mean a yearly difference of $3,000 to $4,000 or more. For Immigrants and visa holders, that matters if you expect to retire in the U.S., draw from a foreign pension, or change states after getting a green card.
State rules also matter because federal and state tax treatment often differ. The IRS may tax part of your retirement income under Form 1040, while your state may exempt it fully. The main federal reference for immigration status is IRS Publication 519, U.S. Tax Guide for Aliens. Treaty rules appear in Publication 901.
Some states also changed their rules recently. Mississippi is set to have a 4% income tax rate in 2026, with planned phaseout through 2030. Michigan, under Public Act 4 of 2023, now gives much broader exemptions for pensions and many 401(k)/IRA withdrawals for 2026.
Tax Tip: If you expect large IRA or pension withdrawals, compare state rules before you move. A new address can change your annual bill by thousands.
Side-by-side comparison: where retirement income gets the best treatment
| Category | States | How retirement income is treated |
|---|---|---|
| No state income tax | Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming | No state tax on wages, pensions, IRAs, 401(k)s, or Social Security |
| State income tax, but retirement income largely exempt | Illinois, Pennsylvania, Mississippi, Iowa, Michigan | State taxes other income, but gives broad retirement exclusions |
| Social Security still taxed in some form | Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont | Social Security may be taxed, often with credits, deductions, or income limits |
| Least friendly to retirees | California, Connecticut, Maine, Minnesota, Nebraska, Rhode Island, Vermont | Limited relief for pensions or retirement distributions |
If you want a broader relocation checklist, see this state tax guide.
The 9 states with No state income tax
These nine states are the cleanest option for retirees:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
In these states, all forms of retirement distributions escape state income tax. That includes:
- Traditional IRA withdrawals
- 401(k) distributions
- Pension income
- Annuity income
- Social Security benefits
This is often the easiest category to compare because there are fewer special rules. If you withdraw $60,000 from a 401(k) in Texas, the state income tax is $0. In California, that same withdrawal may be taxed at ordinary state rates.
For immigrants, this can be especially helpful if you have mixed retirement income. Many long-term residents have U.S. retirement accounts plus a foreign pension. Federal reporting can still be hard, but a No state income tax state removes one layer.
States that exempt retirement income even though they tax other income
Illinois
Illinois has a flat 4.95% income tax. But it exempts retirement income, including many pensions, IRAs, and qualified plan distributions.
Pennsylvania
Pennsylvania generally exempts retirement income. That makes it one of the better states for retirees who still have wage or investment income.
Mississippi
Mississippi exempts retirement income, though early withdrawals may not qualify. Its income tax rate is set at 4% in 2026, with planned elimination by 2030.
Iowa
Iowa gives a retirement income exclusion for many taxpayers age 55 or older. Eligibility can also apply in cases of disability or surviving spouse status.
Michigan
For 2026, Michigan’s changes now make most pensions and 401(k)/IRA withdrawals fully exempt. This is a major shift for retirees moving there.
If you are comparing Illinois and Michigan, the key question is not only your income type. It is also your age, the account type, and whether the distribution is regular retirement income or an early withdrawal.
A separate retirement tax guide can help if you are comparing pension income and IRA withdrawals.
The 8 states that still tax Social Security in 2026
As of March 31, 2026, these states still tax Social Security in some way:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
That does not mean every retiree pays tax there. Many states add credits or income-based exclusions.
Social Security comparison table
| State | Social Security tax treatment for 2026 | Key numbers |
|---|---|---|
| Colorado | Taxed, but many retirees deduct most or all federally taxed benefits | Age 65+ may deduct all taxed benefits; ages 55-64 may deduct up to $95,000 MFJ or $75,000 single; flat tax 4.4% |
| Montana | Taxed with limited subtraction | Age 65+ subtraction up to $5,500 |
| New Mexico | Taxed, but many retirees qualify for relief | Full retirement age plus AGI thresholds of $133,750 joint and $107,000 for most others |
| Utah | Taxed, with credits available | Flat tax 4.50%; retirement tax credit $450; cannot claim both available credits |
| West Virginia | No longer taxes Social Security | Fully phased out by 2026 |
Colorado shows why the label “taxes Social Security” can mislead readers. A 67-year-old retiree may still deduct all federally taxed Social Security and owe $0 state tax on those benefits.
Montana is less generous. If a taxpayer receives $20,000 in federally taxable Social Security, a $5,500 subtraction leaves more income exposed.
Warning: Do not assume “Social Security taxed” means the same rule in every state. Credits, age limits, and AGI cutoffs can change the result.
Which states are most tax-friendly for retirement income?
A useful way to compare states is by category.
Very tax friendly
These states are generally the strongest choices because they have no income tax, no retirement income tax, or broad deductions:
- Georgia
- Mississippi
- Nevada
- South Dakota
- Wyoming
You could also place Florida and Texas in this broad group because they have no state income tax.
Tax friendly
These states usually do not tax Social Security and may also exempt some pension or retirement income:
- Alabama
- Arkansas
- Colorado
- Delaware
- Idaho
- Illinois
- Kentucky
- Louisiana
- Michigan
- New Hampshire
- Oklahoma
- Pennsylvania
- South Carolina
- Tennessee
- Texas
- Virginia
- Washington
- West Virginia
This category matters when two states are close on cost of living, but not equal on taxes.
The states least friendly to retirement income
Several states give retirees little relief.
- California
- Connecticut
- Maine
- Minnesota
- Nebraska
- Rhode Island
- Vermont
California is the clearest example. It has the nation’s top state income tax rate of 13.3% and taxes nearly all retirement income except Social Security. That includes:
- Pensions
- Traditional IRA withdrawals
- 401(k) distributions
- Annuities
If a retiree takes $50,000 from a pension and $25,000 in Social Security, the state tax result can differ sharply by state. In Florida, the state tax is $0. In California, the pension portion is generally taxable.
For many retirees, that is enough to change where they keep domicile.
Why this matters for Immigrants and visa holders
For Immigrants and visa holders, state tax is not just a retirement issue. It is also a residency issue.
A few examples:
- F-1 and J-1 holders may be nonresidents for federal tax purposes under Publication 519, but still have state filing duties.
- H-1B and L-1 workers often become full federal tax residents and may later retire in the U.S.
- Green card holders usually face federal tax on worldwide income and should compare state treatment before moving.
State domicile rules also matter. You may still owe tax to your old state if you did not clearly break residency. That often happens when retirees keep:
- A home in the old state
- A driver’s license there
- Voter registration there
- Too many days there during the year
This is especially important if you receive a foreign pension. Federal treaty claims may require extra forms or disclosure. State law may not follow the treaty result.
If you claim treaty benefits, review Form 8833, Publication 901, and the treaty article itself. Some states ignore federal treaty treatment.
Deadline Alert: For 2026 federal returns filed in 2027, the usual filing deadline is April 15, 2027. The federal extension deadline is October 15, 2027. State deadlines can differ.
Common mistakes retirees make when comparing states
1. Looking only at Social Security
A state may exempt Social Security but still tax your IRA and 401(k) heavily.
2. Ignoring age-based deductions
Colorado and Iowa show why age matters. The rule may change at 55, 65, or full retirement age.
3. Forgetting domicile rules
Moving late in the year does not always end tax residency in the old state.
4. Mixing federal and state rules
The IRS and your state may treat the same pension very differently.
5. Missing immigrant-specific reporting
Foreign pensions and accounts can trigger FBAR and Form 8938 duties, even if the state does not tax the income.
Filing and reporting deadlines to remember
| Tax event | Deadline | Extension available |
|---|---|---|
| Federal individual return for tax year 2026 | April 15, 2027 | October 15, 2027 |
| FBAR, FinCEN Form 114 | April 15, 2027 | Automatic to October 15, 2027 |
If your foreign financial accounts exceed an aggregate $10,000, FBAR may apply. Form 8938 thresholds often start at $50,000 for certain U.S. residents living in the U.S., with higher thresholds for others.
Review the IRS international tax page, Publication 519, and irs.gov/forms-pubs before filing.
You are in the best category if you live in a state with No state income tax or a full retirement income exemption.
You are in the middle category if your state exempts Social Security but still taxes pensions or IRA withdrawals.
You are in the least favorable category if your state taxes most retirement income and offers few deductions, like California or Vermont.
Before you move, confirm your 2026 state rules, review your domicile facts, and check whether your visa or green card status affects your filing position.
Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.
