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Which States Don’t Tax Federal Retirement Income?

There are typically three main types of taxes you will be subject to: income tax, sales tax, and property tax. All of these taxes will affect your savings, and you need to consider them carefully to ensure your financial goals are met. That being said, a large factor that can affect the taxes you have to deal with when you retire is where you live. Not all states will tax your federal retirement income, and if this is a benefit you want to enjoy when you retire, then considering where to live when you finally retire is a must.

With that, let’s delve a little deeper into federal retirement income, understanding what it is made up of and what states do not tax them:

1. Pension

Most pensions will be taxable, and the government calculates the amount by looking at how much the individual has contributed over their professional life and spreads the taxable amount over their life expectancy when they retire. Typically, this amounts to 90% of their pension is taxable. 

While many states will tax pensions, a few states do not tax pension income even in the slightest. These states include Alaska, Florida, Nevada, Washington, Alabama, Hawaii, and a few other states. Some states like New York will not tax a specific aspect of their pension, such as the federal pension. However, New York will tax some private pensions, meaning that only a small part of the pension will be taxed.

2. Social Security

Not many people realize this, but Social Security benefits are taxable. In fact, up to 80% or higher of their benefits will be subject to federal taxes, especially if the individual has a healthy amount of TSP (thrift saving plans) and pension when they finally retire.

Fortunately, not all states tax social security benefits, and these states include:

  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • New Mexico
  • Rhode Island
  • Utah
  • and a few other states

3. Thrift Savings Plan

Even with Roth TSP becoming more popular, which is a method in which many federal employees can enjoy some tax-free income when they retire, the majority of all federal employees’ savings are in the traditional thrift savings plan. This means that most employees will be subject to federal taxes. 

Once again, while many states still tax TSPs, not all will. States such as Alaska, Nevada, Florida, Washington, Texas, Mississippi, and a few other states will not tax TSPs. Keep in mind that some other states may not tax TSPs still if the distribution is below a certain threshold.


While some states may exempt taxes from one or two primary sources of retirement income, a few states exempt all three primary sources of retirement income. Living in such states will allow you to enjoy a retired life that’s as tax-free as possible, allowing you to stretch your savings for as long as possible. However, keep in mind that while some states will exempt such taxes, they may make up for this by increasing other taxes such as sales taxes, property taxes, and other substantial taxes on their own. For that reason, careful consideration of not only federal income taxes but many other taxes will allow you to pick a state you can finally call home, living a financially sound life!

My Federal Plan can connect you with our network of trusted agents for a free consultation and retirement benefits planning for US federal employees. Reach out to us today for our retirement planning services to maximize your financial well-being when you finally retire.

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