These States Do Not Tax Pension Income

More than a dozen states do not tax pension income, no matter your age or income level.

Pensions are far less common in the private sector than they once were, as many companies have moved away from traditional pension arrangements over the past several decades.

Latest government data show that just 15% of private-sector workers had access to defined benefit plans. Today, most workers depend on 401(k)s and similar retirement savings accounts.

Backed by employers or unions, pension plans provide a guaranteed stream of income in retirement for life. They also carry less risk than a 401(k), since the investments are managed and insured by the employer. On top of that, pensions come with tax benefits that can make them appealing to some retirees.

Still, tax treatment varies widely from state to state. If you are planning for retirement, it helps to understand how your pension may be taxed where you live.

Is pension income taxable?

Pensions can be complicated from a tax standpoint. In general, pension income is subject to federal tax, so that should be factored into any retirement budget planning. For more information, see How the IRS Taxes Retirement Income.

But as Kiplinger notes, state tax rules for retirement income differ considerably. Some states tax pension income in full, while others allow partial or total exemptions.

For a state-by-state breakdown, see Kiplinger's guide: Retirement Taxes: How All 50 States Tax Retirees.

When deciding where to retire, it is important to know how your pension and other retirement income will be taxed in your chosen state. That can help you avoid surprises when tax-filing time arrives.

Some states do not tax Social Security

That discussion of pensions may also raise questions about which states tax Social Security benefits.

Eight states tax Social Security benefits, with rules that vary by age and income, much like pension taxation. In some places, tax relief is available for people below a certain age, while other states grant exemptions based on adjusted gross income, or AGI.

Many other states either do not tax Social Security income at all or provide specific exemptions.

16 states that do not tax pension income

Some states do not tax retirement income at all, while others offer exemptions for private or government pensions.

Here are the 16 states that provide a tax break on at least some retirement income. (States are listed alphabetically.)