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Pensions aren’t as common as they used to be in the private sector, as more companies have shifted away from traditional pension plans in the past few decades.

According to the latest government data, only 15% of private-sector workers had access to defined benefit plans. Most employees now rely on 401(k)s and other similar retirement savings options.

Sponsored by employers or unions, pension plans offer a fixed and dependable income stream during retirement for life. They are also less risky than a 401(k) plan, as the investments are managed and insured by your company. Finally, pension plans have specific tax advantages that might make them more attractive to some folks.

That being said, some states are more tax-friendly than others when it comes to your pension. Here’s what you need to know to make the most out of your retirement savings.

Is my pension taxable?

When it comes to taxes, pensions can be a bit tricky. Generally speaking, pension income is taxable at the federal level, so you need to consider this when planning your retirement budget. For more information, see How the IRS Taxes Retirement Income.

However, as Kiplinger reports, taxes in retirement vary from state to state. For instance, some states tax pension income fully, while others offer partial or complete exemptions.

As you consider where you’d like to retire, you should know how your pension and other retirement income will be taxed in your state of choice. That way, you can avoid unwelcome surprises when it’s time to file your tax return.

Some states don’t tax Social Security

All this talk of pensions might have you wondering about states that tax Social Security.

As of 2026, eight states tax Social Security benefits, with rules varying by age and income, similar to pensions. Some states offer tax benefits for individuals under a certain age, while others provide exemptions based on adjusted gross income (AGI).

Meanwhile, many states either don’t tax Social Security income or offer specific exemptions.

16 states that don’t tax your pension income 

Some states don’t tax your retirement income at all, but others might have certain exemptions on private or government pensions.

Here’s our list of the 16 states that will give you a tax break on some of your retirement income. (States are listed alphabetically.)  

 

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