Retirement is a time to enjoy the rewards of your hard work. But taxes can quickly eat into your savings, especially regarding pensions. While you can’t avoid federal taxes on pension income, state taxes vary a lot. Some states don’t tax pensions at all, making them a great choice for retirees.

Choosing the right state can save you money, allowing you to focus on what matters most—whether it’s travelling, spending time with family, or covering healthcare expenses. Below, we look at states that don’t tax pensions and also review their property tax rates and cost of living.

9 Tax-Free States for Pensions

Top States That Don’t Tax Pensions

1. Alaska

• Property tax rate: 1.04%
• Cost of living: $48,670
  Alaska doesn’t tax retirement income, and retirees also receive an annual dividend from the state’s Permanent Fund. However, living here can be expensive due to its remote locations.

2. Florida

• Property tax rate: 0.97%
• Cost of living: $40,512
  Florida is a popular retirement destination, offering no taxes on pensions, 401(k) withdrawals, or Social Security. The sunny weather, tax exemptions, and senior-friendly communities make it a favorite.

3. Nevada

• Property tax rate: 0.84%
• Cost of living: $41,630
  Nevada doesn’t tax pensions or Social Security. While Las Vegas is a big draw, retirees also find quieter areas with plenty of attractions and lower living costs.

4. New Hampshire

• Property tax rate: 1.86%
• Cost of living: $45,575
  New Hampshire doesn’t tax wages, pensions, or Social Security benefits. While property taxes are high, the state has no sales tax, balancing out some of the costs.

5. South Dakota

• Property tax rate: 1.28%
• Cost of living: $36,864
  South Dakota is a practical choice for retirees with no taxes on pensions or retirement distributions. The cost of living is affordable, making it a solid option for stretching retirement income.

6. Tennessee

• Property tax rate: 0.68%
• Cost of living: $34,742
  Tennessee doesn’t tax pensions or retirement income, making it a budget-friendly option for retirees. With low property taxes and affordable living costs, it’s easy to see why retirees flock here.

7. Texas

• Property tax rate: 1.81%
• Cost of living: $37,582
  While Texas has higher property taxes, it doesn’t tax pensions or Social Security. The state offers a mix of city life and quiet rural areas, catering to a wide range of lifestyles.

8. Washington

• Property tax rate: 0.92%
• Cost of living: $47,231
  Washington doesn’t tax pensions or retirement withdrawals, but it does impose a capital gains tax on earnings above $262,000. Retirees enjoy a balance of natural beauty and urban amenities.

9. Wyoming

• Property tax rate: 0.58%
• Cost of living: $37,550
  Wyoming boasts some of the lowest property taxes and no pension taxes. Its peaceful environment and scenic landscapes make it perfect for retirees seeking tranquility.

Other Considerations

While tax-friendly states are appealing, it’s also essential to consider factors like healthcare, weather, and access to amenities. High property taxes or living costs in some states can offset the savings from no pension tax, so balance is key when choosing where to retire.