Retirement Income Calculator By State: Which States Let You Keep More of Your Retirement Money

Key Takeaways

13 states still tax Social Security benefits. Retirees in those states pay an average of $2,340 per year more than retirees in states that fully exempt them.
Moving from California to Nevada on a $120,000 annual retirement income saves approximately $11,460 per year in state income tax alone. Over 25 years, that is $286,500 before investment returns.
Choose your retirement state based on your specific income mix, not broad cost-of-living rankings that ignore how each income source is taxed.
Tool: Run your state-by-state retirement income comparison →

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The Tax Burden Nobody Calculates Before Retiring

Most pre-retirees spend months optimizing their portfolio allocation. They spend almost no time modeling what state taxes will do to their annual income once distributions begin. That is a math error with six-figure consequences.

State income taxes on retirement income are not uniform. They are fragmented, source-specific, and frequently misunderstood. A state with a 5% flat income tax may fully exempt pension income, partially exempt Social Security, and fully tax IRA withdrawals. Another state with a 6% top rate may exempt all three. The headline tax rate tells you almost nothing.

The correct approach: model every income source separately against each state's rules, then total the annual tax burden. The CalcMoney retirement income calculator does exactly that, by income type and by state.

How States Tax Retirement Income: A Framework

There are four major income categories that retirees draw from. Each state applies its own rules to each one.

Social Security Benefits

The federal government taxes up to 85% of Social Security benefits for individuals earning above $34,000 combined income, or couples above $44,000. But 37 states and Washington D.C. add no additional state tax on top of that. The remaining 13 states do.

Those 13 states are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. Some provide partial exemptions based on age or income thresholds. None fully exempt all recipients.

Minnesota taxes Social Security the hardest. A married couple with $80,000 in combined income pays Minnesota state tax on approximately $46,000 of their Social Security. At a 7.85% marginal rate, that costs $3,611 per year versus $0 in Florida.

Pension and Defined Benefit Income

State treatment of pension income varies more than any other category. Illinois, Mississippi, and Pennsylvania exempt all pension income from state tax. New York exempts government pensions entirely and provides a $20,000 exemption on private pension income.

By contrast, California taxes pension income the same as ordinary income, with rates up to 13.3%. Rhode Island applies its standard income tax rates with minimal pension exemptions.

Government pension recipients in particular need to map their specific plan. Military retirement pay receives full exemptions in 34 states as of 2025. Federal civil service pensions receive varying treatment, often better than private pensions.

IRA and 401(k) Withdrawals

Distributions from traditional IRAs and 401(k) accounts represent ordinary income in every state that taxes income. No state provides a blanket exemption for these. The differentiation comes from overall income tax rates and bracket structures.

States with no income tax, including Florida, Texas, Nevada, Washington, Wyoming, South Dakota, and Alaska, apply zero state tax to these withdrawals. Tennessee and New Hampshire tax only investment income, not wages or retirement distributions, so they effectively join this group for IRA withdrawal purposes.

Investment Income and Capital Gains

Most states tax long-term capital gains as ordinary income. California does so at rates up to 13.3%. A retiree who rebalances a taxable portfolio or sells appreciated assets faces the full state marginal rate on every dollar of gain.

Only a handful of states provide preferential capital gains rates. Wisconsin offers a 30% capital gains deduction. South Carolina excludes 44% of long-term gains. Montana applies a 2% capital gains credit.

Worked Example 1: The Florida vs. Minnesota Decision

A married couple, both age 65, retires with the following annual income:

Social Security: $42,000 combined
Pension (private): $36,000
IRA withdrawals: $30,000
Taxable dividends: $12,000
Total gross retirement income: $120,000

In Florida: State income tax on retirement income is $0. Florida has no state income tax.

In Minnesota: The calculation works as follows.

Social Security: Combined income of $120,000 triggers taxation of approximately 85% of Social Security, or $35,700, at the state level. After Minnesota's partial subtraction (which phases out above $79,480 for married filers as of 2024), approximately $28,000 remains taxable. At Minnesota's 7.85% marginal rate, that costs $2,198.

Pension income: Minnesota taxes private pension income fully. At a blended effective rate of approximately 6.8% on $36,000, the cost is $2,448.

IRA withdrawals: Taxed as ordinary income. On $30,000, at a blended rate of approximately 6.2%, the cost is $1,860.

Dividends: Taxed as ordinary income at approximately 7.85%, costing $942.

Total Minnesota state income tax: approximately $7,448 per year.

Over 25 years, assuming 3% annual increases in income, this couple pays approximately $263,000 more in state taxes by retiring in Minnesota instead of Florida.

Worked Example 2: Pennsylvania vs. California for a Pension-Heavy Retiree

A single retiree, age 68, draws the following annual income:

State government pension: $58,000
Social Security: $22,000
IRA withdrawal: $15,000
Total: $95,000

In Pennsylvania: The state exempts all pension income and Social Security from state tax. Pennsylvania taxes IRA withdrawals at a flat 3.07% for amounts that were not previously taxed. On $15,000, that costs $460.50 per year. Total state retirement tax: approximately $461.

In California: No pension exemption applies.

California taxes the $58,000 pension, $22,000 Social Security (California does not tax Social Security, matching federal exclusion rules), and $15,000 IRA withdrawal. Taxable income totals $73,000, after the standard deduction of $5,202 for single filers. At California's brackets, the effective state rate on $73,000 is approximately 7.1%. Total California state income tax: approximately $5,183.

Annual difference: $4,722. Over 20 years, with 2.5% annual income growth, that totals approximately $119,000 in additional taxes paid by the California retiree.

This example is instructive because California does not tax Social Security. Many retirees assume that makes California moderate on retirement taxes. The pension and IRA treatment erases that advantage entirely.

The States That Win for Most Retirement Income Profiles

No single state is best for every retiree. But certain states consistently deliver low total tax burdens across multiple income types.

Best for most retirees with mixed income:

Florida: No income tax. No estate tax. No Social Security, pension, or IRA state tax.
Nevada: No income tax. Strong asset protection statutes.
Wyoming: No income tax. Low property taxes. No estate tax.
South Dakota: No income tax. No inheritance tax.

Best for pension-heavy retirees specifically:

Illinois: Exempts all pension and retirement income, including IRA distributions, from state income tax. The 4.95% flat rate applies only to other income.
Mississippi: Exempts all qualified retirement income. Low overall tax burden.
Pennsylvania: 3.07% flat tax, but broad exemptions for pension and Social Security income.

Best for high-income retirees with significant capital gains:

Washington: No income tax on wages or retirement income. No capital gains tax on long-term gains (a 7% tax on gains above $250,000 applies, with real estate exempt).
Nevada: No capital gains tax.
Wyoming: No capital gains tax.

What to Factor In Beyond Income Tax

State income tax is the largest but not the only variable. Two others move the final number significantly.

Property taxes. New Jersey's effective property tax rate is 2.23%. Alabama's is 0.37%. A retiree with a $600,000 home pays $13,380 per year more in New Jersey than in Alabama on property taxes alone.

Estate and inheritance taxes. 12 states plus D.C. impose estate taxes, often with exemptions far below the federal $13.61 million threshold (2024). Oregon's exemption is $1 million. Massachusetts exempts only $2 million. Retirees with estates in the $2 million to $5 million range face material exposure in these states that they avoid entirely by residing elsewhere.

Healthcare costs. Average Medicare Advantage premiums vary by county. A retiree in South Florida may pay $0 per month for a benchmark plan. The same coverage in parts of rural Montana costs $89 per month.

Run Your Own Numbers

The general patterns above apply to many retirees. Your specific numbers may differ materially based on your pension type, Social Security benefit amount, IRA balance, and how aggressively you plan to draw down assets.

A couple with $55,000 in Social Security and no pension faces a completely different state ranking than a couple with a $90,000 government pension and minimal IRA assets. The CalcMoney retirement income calculator models your actual income mix against each state's current tax rules. You enter your sources and amounts. It returns the annual after-tax income by state.

Use that output to anchor your retirement location decision to your specific financial profile, not to a list article that treats every retiree identically.

Calculate your retirement income by state now →

Results are estimates for informational purposes only. Consult a licensed financial professional before making financial decisions.

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