Want to Avoid Paying Income Taxes? Here Are 12 States That Won’t Tax Your Retirement Income

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Illinois

You won’t see Illinois pop on lists of tax-friendly states very often, and that’s because it’s not known for being tax-friendly at all. But as far as the Midwest is concerned, it actually ranks a lot better than other states, which is why it deserves a mention on our list.

If your pension or 401(k) comes from a qualified employee benefit plan then they’ll be tax-free. The Prairie state also exempts IRAs, and they won’t tax your Social Security benefits either.

Otherwise, Illinois’ income tax rate is pretty low at 4.95%. As for estate taxes, the state does tax estates worth more than $4 million.

Mississippi

If you retire early in Mississippi, Uncle Sam will take a share of your 401(k), pension, or IRA, but once you turn 59½ you’ll no longer be subject to retirement income taxes. On top of that, the Magnolia state won’t tax your Social Security either.

In terms of income tax range, in 2020 the lowest tax rate was 3% on taxable income between $3,001 and $5,000. The highest was 5% on taxable income higher than $10,000. Keep in mind, however, that the state plans on phasing out the 3%, so in 2022 that’ll switch over to 4%, applicable to incomes between $5,001 and $10,000.

Furthermore, the state won’t impose taxes on estates and inheritances.

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