Tax-Free Retirement Distributions

Tax-free retirement distributions are the Holy Grail.

You too can drink from the cup of financial providence.

You’ve worked hard your whole life. When you start taking distributions from your retirement funds, you’re going to start paying federal income tax on them.

There are some exceptions to state income taxes though. Several states don’t require you to pay state income tax at all. Retirement plan distributions are no different in these tax havens.

So, you could go and live in one of those states. Florida isn’t just a place where people go to die. The weather is a nice bonus, but the real reason to retire in the Sunshine State is the lack of state tax on income.

If you’re concerned with flooding, have red hair, or just hate being around retirees, you can choose from Nevada, South Dakota, Texas, Washington, Wyoming and Alaska.

Thirty-six states have partial income tax exemptions. These include:

1. Public Pensions and Retirement Plans. Distributions from federal or state employer plans are exempt from taxation in many states.

2. Private Pensions and Retirement Plans. 10 states offer full exclusions for private pensions and retirement plans. Some of them differ between pension and contributory plans. Others make no distinction.

3. IRAs. There are some states that don’t tax any retirement plan distributions, including IRA distributions.

Tennessee and New Hampshire are states that do not tax wage income and therefore they do not tax retirement plan distributions of any kind. There are also numerous states that exclude a certain limit of retirement plan income from taxation. For example, Maine exempts the first $10,000 of income received from any retirement plan, including IRAs.

Bottom line, the place you live can save you money after retirement. Find out which of these tax-free paradises has a little waterfront lot with your name on it.

If you really want to ball in retirement, check out our previous article on how to buy your retirement home ahead of time. Spoiler alert: you can do this tax-free too.

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