11 States Where 401(k) Withdrawals May Stretch the Farthest

When retirement comes to mind, most people hope their savings will last. Where you choose to live can have a bigger impact on that than you might think, thanks to differences in state taxes, housing, and everyday expenses.

It may seem like no-income-tax states automatically offer the best deal. But skipping income tax does not necessarily mean lower costs overall; higher property taxes or pricier groceries can offset the advantage.

To compare states, we examined four factors: how each state taxes 401(k) and traditional IRA withdrawals, the overall cost of living using the Missouri Economic Research and Information Center (MERIC) index, the effective property tax rate from the Tax Foundation, and the combined state and local sales tax rate, also from the Tax Foundation.

For the ranking, states were grouped by how they treat withdrawals. Those that fully exempt qualifying withdrawals with no dollar cap were ranked first, followed by states with partial or capped breaks, and then states that tax withdrawals. Within each group, the states are ordered from lowest to highest cost of living. Property and sales taxes are included so the trade-offs are easier to see.

States that combine tax breaks on retirement withdrawals with lower living costs can be especially attractive. Even places without income tax may still come with higher property taxes or higher day-to-day expenses.

Here are 11 states where a 401(k) or traditional IRA may go the furthest. Thinking carefully about where to settle can help you save more in retirement.

Iowa

Iowa does not tax retirement income, including 401(k) and traditional IRA withdrawals, for people who are 55 or older by the end of the tax year, according to the Iowa Department of Revenue. Disabled taxpayers and some surviving spouses may also qualify. Younger retirees could still owe tax on withdrawals. Other income is taxed at a flat 3.8%.

Living costs are well below average. Iowa’s MERIC index is 86.1, the third lowest in the country, which means everyday goods and services cost less than in most states. The effective property tax rate is 1.33%, which is relatively high and ranks ninth nationally. The combined sales tax rate of 6.94% is below average, offering some relief.

Mississippi

Mississippi does not tax retirement income, including 401(k) and IRA withdrawals, as long as you have met your plan’s retirement requirements, according to the Mississippi Department of Revenue. Early distributions are treated differently and may be taxed.

People age 65 and older also receive an additional personal exemption. The tax rate on taxable income above $10,000 is 4% for 2026. By 2030, it is scheduled to fall to 3% as the state moves toward phasing out the income tax.

Costs are among the lowest in the nation. The MERIC index is 87.4. The effective property tax rate of 0.58% is well below the middle of the pack, and the combined sales tax rate of 7.06% is close to the national median.

One caveat: state House leaders are considering eliminating the homestead property tax and raising the sales tax to replace the lost revenue, Mississippi Today reported. The idea is still being discussed ahead of the legislative session that begins in January. If adopted, it could change the state’s day-to-day affordability.

Tennessee

Tennessee has no state income tax, so 401(k) and traditional IRA withdrawals are not taxed by the state. There is also no state estate or inheritance tax, which may matter for people planning what they leave behind.

The MERIC index is 89.7, slightly below average and low for a state without income tax. The effective property tax rate of 0.52% is among the lowest in the country. The trade-off shows up at the cash register: Tennessee’s combined sales tax rate is 9.61%, the second highest in the nation, which can be costly for heavy spenders.

Wyoming

Wyoming has no state income tax, so 401(k) and traditional IRA withdrawals are not taxed by the state. The effective property tax rate is 0.53%, which is low, and the combined sales tax rate of 5.39% is well below the national average. Taken together, the tax burden is light.

Wyoming’s MERIC index is 94.4, a little below the national average, so groceries and services are not especially cheap.

Pennsylvania

Pennsylvania does not tax Social Security benefits. Withdrawals from qualifying employer retirement plans are also exempt once you retire after reaching the plan’s retirement age or completing the required years of service, according to the Pennsylvania Department of Revenue. IRAs follow different rules, and early withdrawals may be taxed. Other taxable income is taxed at a flat 3.07%.

Pennsylvania’s MERIC index is 95.3, slightly below the national average, so the tax treatment does much of the work here. The effective property tax rate of 1.26% is the 12th highest in the country, and costs can vary widely by county. The combined sales tax rate of 6.34% is below the national middle.

Oklahoma

Oklahoma is the least expensive state in this ranking. Its MERIC index is 83.0, the lowest in the country, so a dollar can go further here than anywhere else. The state does tax income, but residents can deduct up to $10,000 a year of retirement income from IRAs and employer retirement plans under state tax rules.

The effective property tax rate of 0.79% is close to the national middle. The combined sales tax rate of 9.06% is the sixth highest, so shopping costs more. Even so, the low cost of living helps offset that burden.

Alabama

Alabama taxes 401(k) and traditional IRA withdrawals, though traditional defined-benefit pensions are exempt. Under a 2022 state law, people age 65 and older can also exclude up to $6,000 of taxable retirement income.

The MERIC index is 86.0, the second lowest among the states measured, so day-to-day costs are well under the national average. The effective property tax rate of 0.37% is one of the lowest in the country, which is especially helpful for homeowners. The downside is sales tax: the combined rate of 9.46% is the fifth highest nationally.

Missouri

Missouri’s appeal is largely about affordability. The state does not tax Social Security for people 62 and older, and lower-income retirees can exempt up to $6,000 of private pension income, according to the Missouri Department of Revenue. That benefit phases down once income exceeds $25,000 for single filers or $32,000 for married couples filing jointly.

The lower cost of living is the bigger draw. Missouri’s MERIC index is 88.2, the seventh lowest in the nation. The effective property tax rate of 0.89% is a bit above average, and the combined sales tax rate of 8.44% is relatively high, ranking 12th nationally. Still, low everyday prices keep Missouri in the mix.

Michigan

A 2023 state law restored a deduction for retirement income, and the deduction is fully phased in for 2026, with no birth-year restrictions, according to the Michigan Department of Treasury. That allows retirees to subtract qualifying retirement income, including IRA distributions and most 401(k)-style payments, up to an inflation-adjusted limit.

Michigan’s cost picture is mixed. The effective property tax rate of 1.19% is the 14th highest in the country. The combined sales tax rate of 6.00% is on the low end. The state’s MERIC index is 92.1, below the national average, so the retirement income deduction does much of the heavy lifting.

West Virginia

West Virginia has completed its phaseout of the tax on Social Security benefits, which are fully deductible beginning with the 2026 tax year, according to the West Virginia Tax Division. The state still taxes 401(k) and IRA withdrawals, though, so those distributions can still create a tax bill.

The real attraction is cost. West Virginia’s MERIC index is 87.0, the fourth lowest in the country. The effective property tax rate of 0.51% is among the lowest anywhere, and the combined sales tax rate of 6.60% is below the national average.

Indiana

Indiana taxes 401(k) and IRA withdrawals at a flat 2.95% for 2026, according to the Indiana Department of Revenue, and counties add their own local income tax on top of that.

The MERIC index is 89.7, tied with Tennessee and among the 10 lowest. The effective property tax rate of 0.76% is just under the national average, and the combined sales tax rate of 7.00% is also close to the middle. It is not flashy, but it is consistently affordable.

Bottom line

No single figure can tell you where retirement savings will last the longest. Spending habits, health needs, and housing choices matter just as much as statewide rankings. A low-cost state can still have an expensive city or county, and insurance costs such as home and health coverage can vary widely within the same state.

Taxes are only part of the equation. Required minimum distributions, which the IRS requires from most retirement accounts once you reach a certain age, can also affect your taxable income under a new state’s rules. Running the numbers yourself, or working with a tax professional, is usually better than moving based on a ranking alone. A clear withdrawal plan can also help support your retirement goals.

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