People (ideally) spend decades preparing for retirement, whether it’s paying into Social Security, saving and investing in various retirement accounts, or earning retirement savings. It can seem like a daunting task at times, but it’s well worth the effort when the fruits of your labor pay off as you enter your golden years with a nice nest egg.
There’s no doubt that financial preparation for retirement is one of the surest ways to avoid stress during those years. However, just like in your working years, the chances of you dealing with the IRS are still high. Federal tax rules will continue to apply to everyone, but fortunately, some retirees in certain states may be exempt from many of these taxes.
This is what these states do no tax some retirement income, including Social Security, 401(k)/IRA withdrawals, and pensions. Some states exempt all of the tax, while others partially exempt:
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Arkansas: Up to $6,000 is exempt annually from distributions from IRAs (if you’re age 59 1/2) and retirement plans.
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Illinois: All retirement income is tax-free, including Social Security, retirement account withdrawals, and pensions.
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Iowa: Social security benefits are tax-free. After age 55, pension distributions and pensions are also tax-free.
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Mississippi: All retirement income is tax-free, including Social Security, retirement account withdrawals, and pensions. Early withdrawals are not exempt from state taxes.
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New Hampshire: Social security benefits and pension income are tax-free. Interest or dividends paid through a retirement account (like a traditional IRA) are not tax-exempt, but they are being phased out this year.
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Pennsylvania: All retirement income is tax-free, including Social Security, retirement account withdrawals, and pensions.
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South Carolina: Social security benefits are tax-free. Service accounts and pensions may be tax deductible up to a certain amount. If you are under 65, up to $3,000 can be deducted from your pension; if you’re 65 or older, up to $10,000 is tax deductible.
In most cases, distributions you receive from Social Security and retirement accounts are taxed as your ordinary income. This means that living in a state with no income taxes also means you don’t have to pay taxes on these withdrawals. Currently, nine states do so no have state income taxes: