When your working days come to an end, many retirees will face a decision on where to spend their golden years. Figuring out the cost of living in different areas is an important part of the decision making process, and taxes are a key consideration. Not all states treat retirement income, such as pension payouts or distributions from 401(k) plans and IRAs, the same way.

Here’s what you need to know about how different states tax retirement income, including the states where you won’t pay taxes at all.

States with no income tax

Retirement distributions from 401(k) plans or IRAs are considered income for tax purposes. Fortunately, there are some states that don’t charge taxes on retirement income of any kind: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.

In addition to those eight states, New Hampshire also doesn’t have an income tax, but it does tax interest and dividend payments, which are a staple of many retirement portfolios. You could avoid this tax by holding income-producing assets within a tax-advantaged plan such as an IRA, and then taking a distribution from the plan. Because the distribution would qualify as income, New Hampshire won’t tax you on it.

States that don’t tax retirement income

In addition to the nine states above that don’t have an income tax at all, four states do not tax retirement income: Illinois, Iowa, Mississippi and Pennsylvania. Here’s what you should know about each one.

Illinois

Illinois charges a flat state income tax of 4.95 percent, but all retirement income is exempt from paying the tax. This includes pension payments as well as distributions from plans such as 401(k)s and IRAs. Social Security payments are also exempt.

Iowa

Beginning in 2023, Iowa residents over the age of 55 will not be taxed on their retirement income thanks to a new law that was signed in 2022. Iowa state income tax rates range from 4.4 percent to 6 percent in 2023, but the range will be narrowed each following year until a flat rate of 3.9 percent is implemented in 2026.

Mississippi

Mississippi state income tax rates range from 0 percent to 5 percent, but retirement income is not taxed as long as you’ve met the plan requirements. This means that early distributions from retirement plans may not qualify as retirement income and could be subject to tax and a penalty.

Pennsylvania

Pennsylvania charges personal income tax at a flat rate of 3.07 percent. Retirement income is not taxed in Pennsylvania as long as plan requirements are met. Withdrawals from retirement plans such as IRAs prior to reaching the necessary age (59 ½) may result in taxes.

Other retirement income tax issues

While the states listed above don’t tax retirement income at all, there are other states that provide some exemptions. Several states don’t tax military retirement pay, while other states treat pension income differently than distributions from retirement plans such as 401(k)s or IRAs.

Some states tax Social Security benefits, but many of them offer exemptions of some kind, and most states don’t tax the payments at all.

Be sure to understand the tax implications of living in a state before deciding where to retire. Taxes on retirement income are one element of the equation, but you’ll also want to consider things like sales and property taxes to get a complete picture. You may ultimately decide that paying more in taxes is worth it to you if a state offers other benefits that make up for the higher cost.

Bottom line

If you’re looking to avoid paying state taxes on your retirement income, you’ll have 13 states to choose from, while many others offer exemptions of some sort. Make sure to understand the tax situation in a state before deciding to relocate there. While lowering your tax bill may help you enjoy a more comfortable retirement, it’s not the only factor worth considering.