Here's some very good news for those approaching or in retirement: Fully 41 states don't tax Social Security benefits -- and that number has been growing in recent years. But the news isn't all good. There are actually plenty of states that tax some retirement income, in one form or another.
Here's a look at which states tax which kinds of retirement income.
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These 9 states tax Social Security benefits
Here are the nine states that do tax Social Security benefits:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
If you live in one of these states, don't get too alarmed. Several of the states above only tax the Social Security benefits of those with relatively high incomes, and some only tax benefits that exceed a certain threshold. So there's a decent chance that your Social Security benefits will be taxed lightly -- or not at all.
These 34 states tax pension income
When it comes to pension income, the news isn't as good. Here, per Kiplinger.com, are the 34 states -- plus the District of Columbia -- that tax pension income:
- Arizona
- California
- Colorado
- Connecticut
- Delaware
- District of Columbia
- Georgia
- Idaho
- Illinois
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Missouri
- Montana
- Nebraska
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Rhode Island
- South Carolina
- Utah
- Vermont
- Virginia
- West Virginia
- Wisconsin
Don't hyperventilate yet if you live in one of the states above, because some of the states exclude military pensions, government pensions, or certain other pensions. Some of them only partially tax pensions. So if you live in one of these states, look into the specific rules for that state.
These 37 states tax IRA and/or 401(k) distributions
For many people, 401(k) accounts and IRAs supply another key kind of retirement income. A whopping 37 states -- plus the District of Columbia -- tax such distributions:
- Alabama
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- District of Columbia
- Georgia
- Hawaii
- Idaho
- Illinois
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Missouri
- Montana
- Nebraska
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Rhode Island
- South Carolina
- Utah
- Vermont
- Virgnia
- West Virginia
- Wisconsin
Again, the news may not be as bad as it seems, because some of these states do partial taxation only.
The big picture
Before you get stressed out about the possible taxation of your retirement income, be sure to consider your big tax picture. Remember that each state needs to collect some revenue in order to keep its government running -- to pay for schools, courts, roads, and more. They may do so via property taxes, sales taxes, income taxes, or some combination of various taxes.
So while you might face some kind of retirement income tax, you may be free of property taxes or sales taxes. Consider your lifestyle -- the value of your home, the amount of shopping you do, your income -- and then you can compare which states would tax you more.
Also, while we're on the topic of retirement income, be sure you're setting yourself up to receive enough of it to provide you with a comfortable and low-stress future. Most of us need to develop a solid overall retirement plan -- and then to stick to it. Note that retirement income can include side gigs, payouts from dividend-paying stocks, and/or interest from CDs and bank accounts, among other things. It can also come from slowly selling off portions of your holdings in terrific stocks.
