13 States That Don’t Tax Retirement Income

Start Slideshow

Americans approaching retirement age and those who have already left the workforce have to decide where to spend the rest of their lives.

Determining the cost of living in different areas is an important part of the process, and taxes are a key consideration.

Not all states treat retirement income in the same way, according to a recent analysis by Bankrate.com. A financial advisor can help sort through the complexities.

Consider that 13 states do not tax retirement income. Among those that do tax it, some provide exemptions.

Several states don’t tax military retirement pay, while other states treat pension income differently from distributions from retirement plans such as 401(k)s or IRAs.

In addition, 39 states and the District of Columbia do not tax retirees’ Social Security income.

Eleven still do: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah and Vermont. But Missouri will stop taxing Social Security benefits in 2024.

Taxes on retirement income are part of the equation retirees must solve, but so are things like sales and property taxes. It’s important for them to understand the tax implications of living in a state before deciding where to retire.

Bankrate notes that retirees may ultimately decide that paying more in taxes is worth it as the state of their choice offers other benefits that make up for the higher cost.

See the gallery for the 13 states that do not tax retirement income. State and local tax rates come from Tax Foundation’s mid-year report.

Start Slideshow