Where you live in retirement can be worth more than you think. State income taxes on pension income range from zero to over 13%, and that difference compounds across a 20- or 30-year retirement. Here's the full picture for 2026.
States with no income tax
Nine states impose no state income tax at all. Pension income, Social Security, investment gains, and wages are all untaxed at the state level.
- Alaska
- Florida
- Nevada
- New Hampshire (taxes interest and dividends only on investment income over certain thresholds; wage and pension income is exempt)
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
For a retiree collecting $4,000/month in pension income, moving from California to Florida saves roughly $3,800 to $6,000 per year in state taxes, depending on the specific income level. Over 20 years, that's $76,000 to $120,000 in after-tax retirement income.
States that fully exempt pension income
Even some states with income taxes exempt pension income entirely.
Illinois exempts virtually all retirement income from state tax, including pensions, Social Security, and IRA distributions. Illinois has a flat 4.95% income tax rate on wages, but retirement income is carved out completely.
Mississippi exempts all qualified retirement income from state tax, including pensions, Social Security, 401(k) and IRA distributions, and annuity income. The exemption is broad and applies to both public and private pensions.
Pennsylvania exempts all retirement income for residents age 60 and older, including pensions, Social Security, 401(k) and IRA distributions, and annuities. Pennsylvania has a flat 3.07% tax rate on wages, but retirees are essentially untaxed on retirement income.
Alabama exempts most retirement income including defined benefit pensions from public and private employers, Social Security, and income from IRAs and 401(k)s within certain structures. Alabama has a top income tax rate of 5%.
States with significant partial exemptions
New York provides a $20,000 annual pension exemption for taxpayers 59 and older. Federal, state, and local government pensions are often fully exempt from New York state tax. New York has a top state tax rate of 10.9% on high incomes, so the exemption structure matters a lot depending on your income level.
Georgia allows an exemption of up to $65,000 per person (age 65 and older) for retirement income including pensions, Social Security, and investment income. Couples can exempt $130,000 combined. Most Georgia retirees with modest pensions pay little or no state tax.
Colorado allows a $24,000 exemption on pension and Social Security income for taxpayers age 65 and older. Colorado's flat income tax rate is 4.4%. Retirees with pensions under $24,000 pay no state tax on that income.
Iowa fully exempts all retirement income for residents age 55 and older as of 2023 legislation. This includes pensions, Social Security, 401(k) distributions, and IRA income. Iowa made a significant policy shift that puts it effectively in the full-exemption category for retirees.
High-tax states for pension retirees
California taxes all pension income as ordinary income at rates up to 13.3%. There's no pension exemption for public or private sector pensions. CalPERS and CalSTRS pensions are taxable. A $60,000 annual pension in California generates roughly $3,500 to $5,000 in state income tax for a typical retiree.
New Jersey taxes pensions above certain income thresholds. The pension exclusion phases out for taxpayers with gross income over $100,000, and disappears entirely above $150,000. High-income retirees in New Jersey face state taxes comparable to other high-rate states.
Minnesota taxes pension income at rates up to 9.85% with limited exemptions. Social Security is partially taxed. Minnesota doesn't offer broad pension exclusions for private sector retirees.
Connecticut taxes pension income at rates up to 6.99%. There's a pension exemption but it phases out at higher income levels. Connecticut retirees with substantial pension income face meaningful state tax bills.
Oregon taxes pension income at rates up to 9.9%. Oregon doesn't tax Social Security, but most other retirement income including pensions is fully taxable.
Federal pension note
Federal pensions from the Civil Service Retirement System (CSRS) and Federal Employees Retirement System (FERS) are subject to federal income tax regardless of your state. Most states tax federal pension income the same as private pensions, but some states (like Alabama, Kansas, and Mississippi) exempt federal government pensions specifically. Check your state's rules for federal vs. state vs. private pension treatment separately.
Pension lump sums and state taxes
If you take a pension lump sum, the full amount is taxable in the year you receive it at your state's ordinary income rate, in addition to federal tax. A $500,000 lump sum taken in California generates roughly $55,000 to $65,000 in California state income tax alone on top of federal taxes.
Rolling the lump sum directly to an IRA defers both federal and state tax. If you're considering moving states in retirement, doing the rollover first and then changing domicile before taking distributions can reduce your total tax burden significantly. Consult a tax advisor before executing this strategy.
Use the interactive pension tax by state tool to see the specific treatment in your state. For lump sum present value calculations, use the main PensionMath calculator. For required minimum distribution planning once funds are in an IRA, see the RMD calculator.