Which States Tax Pension and 401(k) Income in 2026? (w/Examples) + FAQs

This article reflects federal rules and all 50 states’ rules as of June 2026 and covers tax year 2026 (the return you file in early 2027). Tax law changes often — confirm current figures with your state’s revenue agency before you file.

Quick Answer

Most states tax at least some pension and 401(k) income in 2026, but 13 states tax none of it. Nine states have no income tax at all, and four more (Illinois, Iowa, Mississippi, Pennsylvania) fully exempt retirement income. The other 37 states tax it fully or partially, depending on your age, income, and pension type.

Where you live can change your retirement tax bill by thousands of dollars a year, and the same $50,000 401(k) withdrawal can be fully taxed in one state and completely tax-free across the border. That gap is the single biggest reason retirees relocate, and 2026 brings real changes — Michigan finished phasing out its retirement tax and West Virginia stopped taxing Social Security entirely.

The stakes are timing-sensitive. If you take a large IRA or 401(k) distribution, do a Roth conversion, or move mid-year, the state rules in play decide how much you keep — and according to SmartAsset’s 2026 analysis, a no-income-tax state like Wyoming can leave a retiree with a far smaller total tax burden than a high-tax neighbor.

Here is what you will learn:

• 🗺️ Which 13 states take zero state tax on your pension and 401(k) in 2026, and which 37 take a cut.
• 💵 Worked dollar examples showing the same withdrawal taxed in California versus Texas versus Pennsylvania.
• 👴 How the new federal OBBBA senior deduction (2025–2028) cuts your federal bill — and why your state may ignore it.
• 🏛️ How states split public, military, and private pensions into different tax buckets.
• ⚠️ The 7 costly mistakes retirees make with state taxes — and exactly what to do before you file.

What “Pension and 401(k) Income” Means for State Taxes

The phrase covers several income types that states treat differently, so it helps to name each one. A pension is a regular payment from a former employer’s defined-benefit plan. A 401(k) is an employer-sponsored savings account you funded yourself, and a traditional IRA works the same way for tax purposes. Social Security is a separate federal benefit with its own state rules.

States rarely lump all of these together. Many tax a private 401(k) withdrawal in full while exempting a government pension entirely. The federal baseline is simpler: the IRS taxes traditional pension, 401(k), and IRA withdrawals as ordinary income, and taxes up to 85% of Social Security for higher earners. Your state then decides whether to follow that, soften it, or ignore it.

The consequence of misreading this is real money. A retiree who assumes “my state doesn’t tax retirement income” may discover that the rule applied only to public pensions, leaving a $40,000 401(k) draw fully taxable. The misconception that all retirement income is treated alike is the most expensive mistake in this entire topic. What you should do is identify your exact income type first, then check your state’s rule for that type — not for “retirement income” in general.

The 13 States That Tax No Pension or 401(k) Income in 2026

Thirteen states leave your pension, 401(k), and IRA withdrawals completely untaxed in 2026. This is the cleanest outcome for a retiree and, per Bankrate’s 2026 review, it splits into two groups.

The Nine No-Income-Tax States

These states levy no broad income tax at all, so wages, pensions, 401(k) draws, IRA distributions, and Social Security are all state-tax-free: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire only ever taxed interest and dividends, and that tax was repealed starting with the 2025 tax year, so it now belongs firmly in this group.

A caution lives in the fine print. Washington imposes a 7% tax on large capital gains above an annual threshold, which can touch a retiree who sells appreciated stock — but it does not touch pension or 401(k) withdrawals. The consequence of ignoring sales and property taxes here is that a “no income tax” state can still cost more overall, so weigh the full picture before you move.

The Four Exemption States

Four states have an income tax but fully exempt qualified retirement income: Illinois, Iowa, Mississippi, and Pennsylvania. Illinois charges a flat 4.95% on wages but exempts pension, 401(k), IRA, and Social Security income entirely. Pennsylvania’s flat 3.07% likewise skips retirement income once you reach the plan’s qualifying age.

The catch is the word qualified. In Mississippi and Pennsylvania, an early withdrawal taken before age 59½ may not count as retirement income and can be taxed — and Mississippi’s top rate falls to 4% in 2026 on the way to eventual elimination. Iowa exempts retirement income only for those age 55 and older, the disabled, and certain survivors, so a 52-year-old early retiree in Iowa is still taxed.

The 2026 Movers: Michigan and West Virginia

Two states changed the map for 2026, and both changes favor retirees. These are the headlines a near-retiree planning a move should know first.

Michigan’s Full Phase-In

Michigan spent four years phasing out its retirement tax under the Lowering MI Costs plan, and 2026 is the year it reaches 100%. Most pension, 401(k), and IRA income is now deductible regardless of birth year. In practice, a single Michigan retiree can shelter roughly the first $65,000 of retirement income, and a married couple roughly $131,000, for the 2026 tax year.

The consequence of not updating your withholding is that you may keep overpaying Michigan tax that you no longer owe. What to do: review your state withholding on retirement distributions now that the deduction is full.

West Virginia’s Social Security Repeal

Starting January 1, 2026, West Virginia no longer taxes any Social Security benefits, regardless of income — the final step of a three-year phaseout under House Bill 4880. This helps nearly 480,000 residents. West Virginia still taxes pension and 401(k) income, though, so it is not one of the 13 fully exempt states.

The Nine States That Still Tax Social Security in 2026

Most states leave Social Security alone — 42 states plus D.C. do not tax it in 2026. But Social Security is bundled into this topic because the states that tax it usually tax pensions and 401(k)s too. As USA Today reports, nine states still tax benefits in some form: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia (West Virginia for the 2025 year, gone in 2026).

Almost all of these states shield lower-income retirees. Connecticut exempts all benefits if your AGI is $75,000 or less single or $100,000 or less joint. New Mexico exempts single filers under $100,000 and joint filers under $150,000. The consequence of crossing one of these thresholds — sometimes by a single dollar of a Roth conversion — is that a chunk of your benefits suddenly becomes taxable, so plan large distributions around the limit.

How States Split Pensions: Public, Military, and Private

A single state can have three different answers depending on who paid the pension. This is the nuance that trips up the most retirees, and per the IndexBox 2026 summary, the buckets matter.

Public and Government Pensions

Many states that tax private 401(k)s still fully or partly exempt state and local government pensions. Alabama and Hawaii, for example, exempt most public and defined-benefit pension income while still taxing 401(k) and IRA withdrawals. The consequence for a private-sector retiree is that a state’s “pension-friendly” reputation may not apply to you at all.

Military Retirement Pay

Military retirement pay gets the most generous treatment nationwide. Thirty-seven states exempt most or all military retirement pay in 2026. A retired service member can therefore live tax-free on a military pension in a state that would still tax the same dollar amount from a civilian 401(k).

Private Pensions and 401(k)/IRA Withdrawals

Private pensions and self-funded accounts are the most commonly taxed bucket. States like California, New York (with a $20,000 exemption), and Minnesota tax private 401(k) and IRA withdrawals as ordinary income. The misconception that “retirement income” is universally protected is exactly why a private-sector retiree should confirm the rule for self-funded accounts, not public pensions.

Which Situation Applies to You?

The right answer depends on your details, so match yourself to a path before reading further.

• You rely mostly on Social Security: You are tax-free at the state level in 42 states plus D.C.; only the nine listed states may tax benefits, and most exempt lower incomes.
• You have a government or military pension: Check your state’s public pension and military rules — many exempt these even while taxing 401(k)s.
• You live on 401(k)/IRA withdrawals: This is the most-taxed bucket; you benefit most from the 13 fully exempt states.
• You are an early retiree under 59½: Watch for states (Mississippi, Pennsylvania, Iowa) where early withdrawals lose the exemption.
• You are planning a move: Compare total tax — income, property, and sales — not just the income-tax headline.

Worked Examples: The Same $50,000, Taxed Three Ways

Here is the differentiator — the actual math on a $50,000 traditional 401(k) withdrawal for a single retiree in 2026, looking only at state income tax on that withdrawal.

In Texas, the state income tax rate is 0%, so the state tax on the $50,000 is $0. In Pennsylvania, the flat rate is 3.07%, but qualified retirement income is exempt, so the state tax is again $0 (assuming the retiree is past 59½). In California, the withdrawal is taxed as ordinary income; using 2026 brackets a single filer pays roughly 1%–8% across the income, and on $50,000 of taxable retirement income the California tax lands near $1,000–$1,300 depending on other income and deductions.

The lesson is stark: identical retirees take home different amounts purely by geography. Over a 25-year retirement, even a $1,200 annual difference compounds to roughly $30,000 — before counting property and sales taxes.

The Federal OBBBA “Senior Deduction” (2025–2028)

This is a federal change, not a state one, but it shapes your overall 2026 retirement tax bill, so it earns its own section. The One Big Beautiful Bill Act created a “senior deduction” — an extra $6,000 for an individual and $12,000 for a married couple — for taxpayers age 65 and older.

The timing is the critical fact. The deduction is effective for tax years 2025 through 2028 and expires after 2028 unless Congress extends it, so plan around its sunset. It phases out for higher earners: it begins shrinking at $75,000 of income for individuals and $150,000 for couples, and disappears entirely above $175,000 (single) and $250,000 (joint).

What it does not do is exempt Social Security — benefits remain federally taxable, but the deduction can offset the taxable portion, which is why officials say 51.4 million of 58.5 million retirees will owe no federal tax on benefits. Crucially, your state may not follow this deduction. Most states use their own deduction rules and do not automatically adopt new federal write-offs, so do not assume your state tax drops just because your federal tax did. To claim it, take it on your 2026 federal Form 1040 and keep records of your age and income; check the IRS senior and retiree page for filing details.

Three Common Scenarios

Each scenario below shows a typical retiree situation and its state-tax result for 2026.

Retiree Situation	State Tax Result (2026)
Single retiree, $45,000 in 401(k) draws, lives in Florida	$0 state tax — no income tax on any retirement income
Married couple, $90,000 pension + Social Security, lives in Michigan	Near $0 — full phase-in shelters roughly the first $131,000 of retirement income
Single retiree, $60,000 IRA withdrawals, lives in Minnesota	Taxed as ordinary income; Social Security may also be partly taxed above thresholds

Three Named Examples

Carla in Pennsylvania. Carla, 66, withdraws $40,000 from her 401(k) in 2026. Because she is past 59½, Pennsylvania treats it as qualified retirement income and taxes none of it, saving her about $1,228 versus the state’s 3.07% flat rate.

David, a military retiree in Montana. David receives $48,000 in military retirement pay. Montana taxes Social Security but exempts most military pay, so his pension is largely shielded — but he checks the state rule before assuming his small IRA draw is also exempt.

Renee, an early retiree in Iowa. Renee retires at 53 and pulls $30,000 from her IRA. Because Iowa’s exemption starts at age 55, her withdrawal is still taxed at Iowa’s 3.8% flat rate until she turns 55 — a detail that costs her roughly $1,140 in 2026.

Mistakes to Avoid

• Assuming “no income tax” means “no taxes.” No-income-tax states often have higher property or sales taxes, raising your total bill.
• Confusing public and private pensions. A state may exempt a government pension while fully taxing your 401(k), leaving an unexpected bill.
• Taking an early withdrawal in an exemption state. In Mississippi, Pennsylvania, and Iowa, distributions before the qualifying age can lose the exemption and trigger tax.
• Ignoring Social Security thresholds. Crossing an income limit in Connecticut, Vermont, or New Mexico can make benefits taxable, sometimes over a single dollar.
• Forgetting to update Michigan withholding. With the 2026 full phase-in, many retirees keep overpaying tax they no longer owe.
• Assuming your state follows the OBBBA senior deduction. It is federal; most states use their own rules, so your state tax may not drop.
• Treating a part-year move as a clean break. Move mid-year and both states may tax the income earned while you were a resident there.

Do’s and Don’ts

• Do confirm the rule for your exact income type, because pensions, 401(k)s, and Social Security follow different state rules.
• Do compare total tax — income, property, and sales — since the income-tax headline hides half the cost.
• Do time large withdrawals and Roth conversions around state income thresholds to protect Social Security from tax.
• Do update your state withholding after a law change like Michigan’s so you stop overpaying.
• Do keep records of your age and residency dates, because exemptions and part-year residency hinge on them.
• Don’t rely on a state’s “retiree-friendly” reputation without checking your specific pension type.
• Don’t withdraw before the qualifying age in an exemption state without checking the early-withdrawal rule.
• Don’t assume Social Security is tax-free everywhere; nine states still tax it in some form.
• Don’t ignore a mid-year move’s two-state filing duty, or you may underpay and face penalties.
• Don’t treat federal deductions as automatic state deductions, because conformity varies widely.

Pros and Cons of Relocating for Lower Retirement Taxes

• Pro — Direct savings: Moving from a high-tax state to a no-tax state can save thousands yearly on the same income.
• Pro — Predictability: Flat or no-tax states make budgeting easier because your tax does not climb with each withdrawal.
• Pro — Social Security protection: Most states leave benefits alone, so a move often removes that tax entirely.
• Pro — Estate clarity: Some low-tax states also lack estate or inheritance taxes, simplifying legacy planning.
• Pro — Withdrawal freedom: In fully exempt states you can take large 401(k) draws without a state-tax penalty.
• Con — Hidden taxes: No-income-tax states often offset with high property or sales taxes.
• Con — Cost of living: Housing, insurance, and healthcare may erase the tax savings.
• Con — Family distance: Moving for taxes can separate you from family and established doctors.
• Con — Two-state filing year: The year you move brings complex part-year returns.
• Con — Law changes: A state’s friendly rule can change, as Michigan’s and West Virginia’s recent shifts show.

What to Do Next

1. Identify each income source — public pension, private pension, 401(k)/IRA, Social Security — and list the 2026 amount of each.
2. Look up your state’s rule for each source on your state revenue agency’s website, not a general “retirement income” claim.
3. Check your age and the qualifying age for any exemption, especially if you are under 59½ or under 55 in Iowa.
4. Review your withholding on Form W-4P for federal and your state’s equivalent, adjusting after any law change.
5. Model a large withdrawal or Roth conversion against state income thresholds before you act.
6. Call a CPA or tax advisor if you are moving mid-year, doing a six-figure conversion, or hold mixed pension types — this is where a professional pays for themselves, usually $300–$600 for a planning session.

This article is educational and is not a substitute for advice from a licensed tax professional about your specific situation.

FAQs

Which states tax 401(k) and pension income in 2026?

Thirty-seven states tax pension or 401(k) income fully or partially in 2026. The 13 that do not are the nine no-income-tax states plus Illinois, Iowa, Mississippi, and Pennsylvania.

Do any states tax Social Security in 2026?

Yes — nine states still tax Social Security in some form: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and (for 2025 only) West Virginia. Most exempt lower-income retirees.

Does Michigan tax retirement income in 2026?

No, for most retirees. Michigan finished phasing out its retirement tax in 2026, sheltering roughly the first $65,000 (single) or $131,000 (joint) of pension and 401(k) income for the 2026 tax year.

Does West Virginia tax Social Security in 2026?

No. Starting January 1, 2026, West Virginia exempts all Social Security benefits regardless of income, completing a three-year phaseout. It still taxes pension and 401(k) income, though.

Which states have no income tax at all in 2026?

Nine states: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire repealed its interest-and-dividends tax starting with the 2025 tax year.

Are early 401(k) withdrawals taxed differently by states?

Yes, in some states. Mississippi, Pennsylvania, and Iowa may tax withdrawals taken before the qualifying age because they no longer count as exempt “retirement income.”

Does the OBBBA senior deduction cut my state tax?

Usually no. The $6,000 (single) / $12,000 (joint) senior deduction is federal and runs for tax years 2025–2028. Most states use their own rules and do not automatically follow it.

Does Pennsylvania tax 401(k) withdrawals?

No, once you qualify. Pennsylvania exempts pension and 401(k) income for retirees past the plan’s qualifying age, though early withdrawals before 59½ may be taxed at its 3.07% flat rate.

Is military retirement pay taxed by states in 2026?

Mostly no. Thirty-seven states exempt most or all military retirement pay in 2026, even some that tax civilian pensions and 401(k) withdrawals.

What is the most tax-friendly state for a 401(k) retiree in 2026?

Florida is a top choice for most retirees — no income tax, moderate property tax, and no tax on any retirement income — though Wyoming and South Dakota rank similarly on total tax burden.

Do I owe state tax in two states if I move mid-year?

Yes, usually. You typically file a part-year return in each state, paying tax on the income earned while a resident of that state, which can complicate the year you relocate.

Does Iowa tax retirement income in 2026?

No, for those 55 and older. Iowa exempts pension, 401(k), and IRA income for residents age 55 or older, the disabled, and certain survivors; younger retirees may still be taxed at the 3.8% flat rate.

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