States That Do Not Tax Retirement Pensions
In the United States, retirement pension packages from private or public sector jobs are taxed at the state level. Certain states, a total of ten as of 2010, do not tax retirement pensions, and thus offer more favorable areas to retire. According to the National Conference of State Legislatures website, individual states do not tax pension plans to attract retirees to the state, and protect the income of retired tax-payers already living in the state.
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Alabama
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Alabama does not tax state or local pensions, federal civil service, military, social security and railroad pension income. Private pension income is also exempt, as long as it is from a defined benefit plan. These exemptions include out-of-state pension plans.
Hawaii
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All Hawaiian retirement pensions are exempt from taxation. However, if you have a private pension, only contributory plans are exempt. Out-of-state pensions are also exempt from Hawaii taxation.
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Illinois
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Illinois does not tax any retirement pensions. If you have a private pension, however, it must be a qualified retirement plan pension. Illinois personal retirement accounts, such as 401(k)s or Roth IRAs, are also exempt.
Kansas
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In Kansas, state and local pension plans are exempt, but only for pensions originating in the state. Federal civil service and military pensions are also exempt, and Social Security and railroad pensions are exempt with an income limitation. Private pension income and out-of-state government pensions are taxed.
Louisiana
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In Louisiana, all pensions are exempt from taxation, but only a certain amount of retirement funds is exempt for out-of-state local and state pensions and private pensions. Recipients of out-of-state local and state pensions or private pensions that are 65 years or older are exempt for up to $6,000 a year if they are single, and $12,000 a year if they are married and filing jointly, or no more than $6,000 each.
Massachusetts
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Massachusetts does not tax any Social Security, railroad, military or federal civil service pensions, but all private pensions are taxed. Massachusetts state or local pension plans are also not taxed, as long as the pension originated in the state. Out-of-state local and state pensions are exempt, but only if the issuing state has a reciprocal agreement that allows exemption for Massachusetts plans as well.
Michigan
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Michigan residents with a private pension or out-of-state local or state pension do not have to pay taxes on their pension if their income is no more than $45,842 if they are single, and $91,684 if they are married, which does not include any public retirement funds. Private plans do not include 457 plan income. All other types of retirement pension plans are exempt from taxation in Michigan, with the exception of out-of-state local or state pension plans from a state that does not offer the same reciprocal benefits for Michigan out-of-state pensions.
Mississippi
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All Mississippi retirement pensions are exempt from taxation, with the exception of private pensions, which are only exempt if they are qualified plans. This includes all privately-funded employment plans, such as 401(k) plans.
New York
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New York's government civil service, military, Social Security and railroad pensions are exempt from taxation. State or local pension plans are also exempt, but out-of-state local or state plans and private pension plans are only exempt up to $20,000, and only if the recipient is 59 1/2 years of age or older.
Pennsylvania
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All Pennsylvania retirement pensions, including private and out-of-state pensions, are exempt from taxation. However, recipients must be 59 1/2 years of age or older for retirement pensions to be exempt.
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