Military, federal and state and local government pensions are also exempt from state income taxes. Often, these distributions range in the hundreds of thousands of dollars, so they can significantly affect your retirement savings. And just like inheritances, life insurance income is tax-free for the beneficiary, at least if taken in a lump sum rather than in installments. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming do not have a state income tax.
Retirees can save a lot of money in these states that completely exempt from taxes on the most common types of retirement income (401 (k) s, IRAs and pensions. You've worked hard all your life and are now retired (or you'll be retiring soon). Unfortunately, it's very likely that Uncle Sam will keep a portion of his 401 (k), traditional IRA, or pension income. But what about their status? Will it also affect your retirement income? You can earn tax-free retirement income from both a Roth IRA and a Roth 401 (k).
Unlike a traditional IRA, you won't get a tax deduction when you contribute to a Roth account, but your growth and retirement are tax-free during retirement. One way that deposits in a Roth IRA differ from those made in a traditional IRA is that you pay federal income taxes on them during the tax year in which you got the money, rather than the year in which you withdraw the money. So, you'll never pay federal taxes on money you deposit in an HSA, as long as you follow the IRS rules for this type of account. Without a comprehensive income tax, you can completely avoid state taxes on your 401 (k), IRA, or pension payments if you retire to New Hampshire.
However, the state will keep its share of the 401 (k) plan income, IRA, or pension received by those who retire early. However, some states completely exempt from taxes the most common types of retirement income (401 (k), IRAs and retirement pensions. Income paid in the form of dividends by companies to their shareholders is considered, for tax purposes, to be qualified (the most common) or unqualified. Like an inheritance, waiting for the payment of life insurance is not an ideal strategy for funding a retirement plan.
One advantage of a Roth Individual Retirement Account (IRA) over a traditional IRA is that qualified distributions are not taxable. Payments from a 401 (k) plan or IRA after retirement also avoid state taxes (again, except for early retirement). With no income taxes or 401 (k) income taxes, IRA or pensions, it's also a great place to take advantage of your retirement savings. However, it is the only state in the Midwest that completely exempts 401 (k), IRA and pension income from taxes.