States That Do Not Tax Retirement Income: The Full List

States That Do Not Tax Retirement Income: What High-Net-Worth Retirees Actually Need to Know

The states that do not tax retirement income can save a high-income retiree hundreds of thousands of dollars over a 25-year retirement, but the headline "no income tax" label conceals as much as it reveals. Washington State has no income tax yet imposes a 7% capital gains tax on gains above $250,000. Texas has no income tax yet carries effective property tax rates that can cost $21,000 to $27,000 more annually than Florida on a $3M home. The decision deserves more than a list.

For someone pulling $300,000 to $500,000 per year from a combination of investment accounts, pensions, and Social Security, the right state choice is a genuine wealth preservation decision. The wrong one is an expensive mistake that compounds quietly for decades.

Which States Do Not Tax Retirement Income Including Social Security and Pensions?

Nine states currently levy no broad-based individual income tax, according to the Tax Foundation's 2024 state income tax data. That means zero state tax on Social Security, pension income, 401(k) distributions, and IRA withdrawals, regardless of amount.

Those nine states are:

• Alaska
• Florida
• Nevada
• New Hampshire (phased out its tax on interest and dividend income fully by 2025)
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

Three additional states, Illinois, Mississippi, and Pennsylvania, have broad-based income taxes but fully exempt most or all retirement income, including 401(k) and IRA distributions, Social Security, and pension income. Pennsylvania's exemption is particularly clean: qualified retirement income is excluded regardless of dollar amount, which matters when you're drawing $400,000 per year from a pre-tax account.

For understanding your tax obligations in retirement across all income types, the state-level picture is only half the equation. At the federal level, the IRS taxes up to 85% of Social Security benefits for high-income retirees under the combined income thresholds in IRS Publication 915, a threshold virtually every FatFIRE retiree will exceed. State exemptions layer on top of that federal obligation, not instead of it.

Georgia exempts up to $65,000 per person (age 65 and older) in retirement income. Kentucky allows an exclusion of up to $31,110. These partial-exemption states can still be competitive depending on your income mix, but they require more careful modeling. For a detailed breakdown of one such state, see Georgia's approach to retirement income taxation.

What States Have No Capital Gains Tax on Investment Income for Retirees?

This is where the "no income tax" framing breaks down for most FatFIRE retirees.

If your retirement income is primarily investment-driven, which it likely is at $5M+ net worth, you need to evaluate capital gains treatment specifically. Two of the nine no-income-tax states have created meaningful carve-outs that affect high-net-worth retirees directly.

Washington State enacted a 7% capital gains tax in 2022 on long-term capital gains above $250,000, upheld by the Washington Supreme Court in 2023. A retiree with a $5M portfolio generating $300,000 in annual long-term capital gains would owe $3,500 in Washington capital gains tax annually despite the state having no income tax. That number grows quickly if you're realizing larger gains from a business sale or concentrated position liquidation.

New Hampshire taxed interest and dividend income at 5% until the tax was fully phased out in 2025. As of 2025, New Hampshire is a clean no-tax state for all retirement income types.

The states with no income tax and no separate capital gains or investment income tax, as of 2025, are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. For retirees with substantial taxable portfolios, these seven represent the cleanest options.

For a full picture of how state taxes affect Roth IRA distributions, the analysis differs again. Roth distributions are generally not taxable at the state level in most states, but the conversion event itself, where you move money from pre-tax to Roth, is taxable income in states that have an income tax.

The federal 3.8% Net Investment Income Tax (NIIT) applies to investment income for individuals with modified adjusted gross income above $200,000 ($250,000 married filing jointly), per IRS Topic No. 559. Most FatFIRE retirees will owe NIIT regardless of state. State selection doesn't eliminate it, but it can reduce the combined marginal rate on investment income significantly.

How Much Can You Save in Taxes by Retiring in a No-Income-Tax State?

Research published in the Journal of Financial Planning found that lifetime tax savings from relocating from a high-tax to a no-income-tax state can exceed $500,000 for affluent retirees over a 25-year retirement horizon. That figure is conservative for someone with $5M+ in assets.

Run the math on a concrete scenario: a married couple drawing $500,000 per year in retirement income (a mix of IRA distributions, Social Security, and investment income) moving from California to Florida.

California's top marginal income tax rate is 13.3%. On $500,000 of taxable income, the state tax exposure is substantial, though the effective rate on the full amount depends on the income composition. Conservatively, a California resident in this scenario might pay $50,000 to $65,000 annually in state income tax. Florida collects zero.

Over 25 years, even without accounting for investment returns on the tax savings, that gap compounds to $1.25M to $1.6M in nominal terms.

The table below compares the total tax environment across the most relevant no-income-tax states for a FatFIRE retiree with $500,000 annual income and a $3M primary residence.

Property tax rates are approximate effective rates based on Tax Foundation and state assessor data. Actual bills depend on local millage rates and assessment ratios.

Texas's property tax burden stands out. On a $3M home, the difference between Texas and Nevada is roughly $34,500 per year. Over 25 years, that's $862,500 in additional property taxes, before accounting for the time value of money. The income tax savings are real, but they don't exist in isolation.

Which States Have the Lowest Overall Tax Burden for High-Net-Worth Retirees?

The Tax Foundation's State and Local Tax Burdens data confirms that total burden varies dramatically even among no-income-tax states, because property, sales, and excise taxes offset income tax savings in ways that rarely appear in simplified retirement guides.

For a FatFIRE retiree optimizing across all tax types, the ranking shifts from the simple "no income tax" list.

Nevada and Wyoming consistently rank as lowest total burden for high-net-worth retirees. No income tax, no capital gains tax, moderate property taxes, and no estate tax. Wyoming adds the benefit of strong asset protection laws and trust-friendly statutes, which matter for wealth transfer planning.

Florida ranks well overall, with the property tax advantage over Texas being significant for high-value real estate holders. Florida also has no estate tax, which is relevant given that 12 states and the District of Columbia impose their own estate taxes with exemptions far below the federal $13.61 million per-individual exemption in 2024, according to the American Bar Association.

Tennessee offers no income tax and no capital gains tax, but its combined state and local sales tax rate (approximately 9.5%) is among the highest in the country. For retirees with high consumption spending, this is a real cost.

Alaska is the outlier: no income tax, no sales tax at the state level, and the Permanent Fund Dividend pays residents annually. The trade-off is cost of living, particularly for goods and services in remote areas, and healthcare access outside of Anchorage.

For retirees considering options beyond the 50 states, Puerto Rico's unique tax advantages for retirees under Act 22 (now Act 60) are worth examining separately. U.S. citizens who establish bona fide residency in Puerto Rico can exclude Puerto Rico-sourced capital gains and passive income from U.S. federal tax entirely, a different category of planning that goes well beyond state tax optimization.

How Do You Establish Domicile in a New State to Avoid Taxes From Your Former State?

This is where the planning gets serious, and where most general retirement tax content fails high-net-worth readers entirely.

Filing a change-of-address form is not domicile establishment. Tax attorneys recommend a documented checklist, and for good reason: California and New York both maintain dedicated audit units targeting high-income individuals who claim to have changed domicile. A failed domicile challenge results in back taxes, interest, and penalties covering multiple years, potentially eliminating years of anticipated tax savings in a single audit.

The core checklist for establishing domicile in a new state:

1. Surrender your prior state's driver's license and obtain a new one in the new state
2. Re-register all vehicles in the new state
3. Update voter registration to the new state
4. Move primary bank accounts and update addresses on all financial accounts
5. Update estate planning documents (will, trusts, powers of attorney) to reflect the new state's law
6. Transfer primary club memberships, professional affiliations, and religious affiliations to the new state
7. Spend fewer than 183 days in the prior state in each calendar year
8. Retain contemporaneous records (credit card statements, phone records, travel logs) for at least six years

That last point is not optional. California's Franchise Tax Board applies a multi-factor test examining the location of a taxpayer's closest contacts and can assert tax liability on income earned during periods of claimed non-residency if domicile change is not clearly established, per the California FTB's Residency and Sourcing Technical Manual.

New York adds a separate trap. Under New York's "statutory residency" rule, individuals who maintain a permanent place of abode in New York and spend more than 183 days in the state are taxed as full-year residents regardless of where they claim domicile, according to New York State Department of Taxation and Finance Publication 88. Retaining a New York apartment or vacation home while claiming Florida domicile is a common and expensive mistake.

The practical implication: if you own property in California or New York, consult a tax attorney before you move, not after.

Can California or New York Tax You After You Move to a No-Income-Tax State?

Yes, and they do.

California's FTB audits high-income departures specifically. The audit window is four years from the later of the return due date or filing date, and California can extend it if they believe fraud is involved. The FTB will examine where you spent your time, where your family lives, where your doctors and dentists are, where your safe deposit box is, and where you conduct business.

New York's Department of Taxation and Finance is equally aggressive. The statutory residency rule described above catches retirees who maintain New York property and spend significant time in the state, even if they've filed as Florida residents for years.

The financial stakes are high. California's top marginal rate is 13.3%. New York City residents face a combined state and city rate exceeding 14%. On $500,000 of annual retirement income, a successful domicile challenge by either state represents $65,000 to $70,000 in additional annual tax liability, plus interest and penalties on prior years.

The standard of proof required to rebut a California or New York domicile challenge is high. Contemporaneous documentation, not reconstructed records, is what holds up in an audit. Start building that paper trail on day one of your new state residency.

Roth Conversions and State Relocation: The Highest-Leverage Timing Decision

Most retirement tax planning content misses this entirely.

A retiree who converts a $2M traditional IRA to Roth in the year they establish residency in a no-income-tax state avoids state income tax on the entire conversion amount. At California's top marginal rate of 13.3%, that represents $266,000 in state tax savings on a single conversion event.

This is not a minor planning detail. For FatFIRE individuals with large pre-tax retirement accounts, coordinating the year of state residency change with the year of major Roth conversions or other large distributions is one of the highest-leverage tax planning decisions available. The window is narrow: you need to have established domicile in the new state before the distribution or conversion occurs.

The same logic applies to other large taxable events: business sale proceeds, deferred compensation payouts, stock option exercises, and large capital gains realizations. The best way to withdraw from retirement accounts in a tax-efficient sequence depends heavily on which state you're in when each distribution occurs.

For how your tax strategy changes in retirement, the interaction between state residency timing and large distribution events deserves dedicated modeling with a tax attorney, not a rule of thumb.

Federal Tax Interactions That State Planning Cannot Solve

State tax optimization is real, but it operates within a federal tax framework that applies regardless of where you live. Three federal mechanisms deserve attention.

Net Investment Income Tax (NIIT). The 3.8% NIIT applies to investment income for individuals with MAGI above $200,000 ($250,000 married filing jointly), per IRS Topic No. 559. Moving to Florida doesn't reduce this. A FatFIRE retiree with $500,000 in annual investment income owes $19,000 in NIIT regardless of state.

Medicare IRMAA. Medicare Part B and Part D premiums are subject to income-related monthly adjustment amounts based on MAGI from two years prior. At the highest income tier (above $750,000 for married filers), Medicare Part B premiums exceed $594 per person per month in 2024, per the Centers for Medicare and Medicaid Services. That's over $14,000 annually per couple, before Part D surcharges. State tax planning that reduces MAGI (through Roth conversions in prior years, for example) can reduce IRMAA costs, but the mechanism is federal, not state.

U.S. Citizens Abroad. For FatFIRE retirees considering international relocation, the IRS requires U.S. citizens and permanent residents to pay federal income tax on worldwide income regardless of where they live, per IRS Publication 54. Eliminating state tax through foreign relocation is achievable. Eliminating federal tax is not, absent renunciation of citizenship.

The FICA obligations on retirement income question is simpler: Social Security and Medicare taxes generally don't apply to retirement distributions, though they do apply to earned income if you continue working.

Estate and Inheritance Tax: The State Tax Most Retirees Overlook

Income tax gets the attention. Estate tax is where the real money can disappear.

Twelve states and the District of Columbia impose their own estate taxes with exemptions far below the federal exemption of $13.61 million per individual in 2024, according to the American Bar Association. Massachusetts and Oregon impose estate taxes starting at $1 million in taxable estate value. Washington State's estate tax applies above $2.193 million with rates reaching 20%.

For a FatFIRE retiree with $10M in assets, dying as a Massachusetts resident could trigger $900,000 or more in state estate tax that would not exist in Florida, Nevada, or Wyoming. That's a one-time cost, but it's a large one.

Six states also impose inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland is the only state with both an estate tax and an inheritance tax.

The interaction between state estate tax and federal estate tax planning is complex. Portability of the federal exemption between spouses, bypass trust structures, and charitable giving strategies all interact with state-level exemptions differently. If your estate plan was drafted in a high-tax state and you've relocated, have your estate attorney review it under the new state's law.

For a building a tax-efficient retirement income portfolio that accounts for both income and transfer taxes, the state of domicile is a foundational variable, not an afterthought.

The Practical Framework: How to Choose Your Retirement State

The decision framework for a FatFIRE retiree is not "which state has no income tax." It's a multi-variable optimization across income type, asset composition, spending patterns, real estate holdings, estate planning goals, and lifestyle preferences.

A simplified decision matrix:

The 4 percent rule for sustainable withdrawals and your withdrawal sequencing strategy should be modeled under the specific tax rules of your target state before you move, not after.

Louisiana's retirement income tax benefits represent another partial-exemption state worth modeling if proximity to family or lifestyle factors point that direction. The analysis is the same: model the full tax burden, not just the income tax rate.

Finally, if you're still accumulating or in the transition phase, the strategic withdrawal approaches for retirement accounts you use in the years before and after relocation can meaningfully affect your total tax outcome. The state you're in when you take large distributions matters as much as the state you plan to retire in long-term.

References

• Tax Foundation -- "State Individual Income Tax Rates and Brackets" (2024)
• Tax Foundation -- "State and Local Tax Burdens, Calendar Year 2022" (2024)
• Internal Revenue Service -- "Publication 915: Social Security and Equivalent Railroad Retirement Benefits" (2024)
• Internal Revenue Service -- "Topic No. 559: Net Investment Income Tax" (2024)
• Centers for Medicare and Medicaid Services -- "Medicare Income-Related Monthly Adjustment Amount (IRMAA)" (2024)
• California Franchise Tax Board -- "Residency and Sourcing Technical Manual" (2023)
• New York State Department of Taxation and Finance -- "Publication 88: A Guide to New York State Residency" (2023)
• American Bar Association -- "State Estate and Inheritance Taxes: A Primer" (2023)
• Journal of Financial Planning -- "The Impact of State Income Taxes on Retirement Distribution Strategies" (2022)
• Internal Revenue Service -- "Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad" (2024)