State Income Taxes for Early Retirement: The 4-Tier Guide (2026)

Federal taxes get most of the FIRE planning attention, but state taxes can add $5,000–$30,000 per year to your retirement spending — and every dollar of extra state tax raises your FI number. On $80,000 of traditional 401(k) withdrawals per year, moving from California (effective ~8% state rate) to a no-income-tax state saves roughly $6,400 annually, or $192,000+ over 30 years. For an early retiree on a 40-year horizon, that difference alone can move retirement up by 1–3 years.

State taxes are also deeply intertwined with Roth conversion ladder timing. Converting $60,000 per year in California adds roughly $5,600 in state tax on top of the federal bill — whereas converting in Texas or Florida costs nothing extra at the state level. The decision to move — and when to move relative to your conversions — is worth modeling before you start the ladder.

This guide classifies every state into four tiers by how they treat retirement income: 401(k) and IRA withdrawals, Social Security, pensions, and Roth conversions. Use the calculator below to estimate your current state tax burden and the lifetime savings if you moved to a more favorable tier.

The Four State Tiers at a Glance

The table below summarizes how each tier treats the income sources most common in early retirement: traditional 401(k)/IRA withdrawals, Roth conversions, qualified dividends and long-term capital gains, and Social Security benefits.

State Retirement Income Tax Calculator

Enter your annual income sources in retirement and your current vs target state tier to see the annual state tax difference and what that gap is worth over a full early retirement horizon.

Tier 1: No Income Tax States (9 States)

Nine states impose no broad-based individual income tax:¹ Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For early retirees, this is the simplest situation: 401(k) withdrawals, IRA distributions, Roth conversions, qualified dividends, capital gains, and Social Security are all $0 at the state level.

Planning notes for Tier 1 states:

• Texas: No income tax, but property taxes are among the highest in the nation (1.5–2.5% of assessed value). A $600,000 home can carry $9,000–$15,000/yr in property taxes — relevant for early retirees budgeting fixed expenses.
• Florida: No income tax, no estate tax. Popular for FIRE relocation. ACA marketplace is available. No state IRMAA issue.
• Nevada: No income tax, moderate property taxes. Popular destination for California FIRE emigrants.
• New Hampshire: Has historically taxed interest and dividend income (5% rate), but this was fully phased out in 2025. As of 2026, NH has no income tax on any form of income, including investment income. Note: higher property taxes than national average.
• Washington state: See the dedicated section below — WA has no income tax but does have a 7% capital gains tax on taxable gains over $262,000 (2026). Qualified retirement accounts are fully exempt, but early retirees with large taxable brokerage accounts should take note.

Tier 2: Income Tax State but Retirement Income Fully Exempt (~5 States)

These states have an income tax but broadly exempt qualified retirement income — 401(k) distributions, IRA withdrawals, pensions, and Social Security. For an early retiree drawing entirely from tax-advantaged accounts, the effective state tax rate is essentially zero.²

• Illinois (4.95% flat rate): Fully exempts 401(k) distributions, IRA withdrawals, pension income, and Social Security from state income tax. Investment income (LTCG, ordinary dividends) from a taxable brokerage is taxed at 4.95%. Roth conversions are treated as ordinary distributions from a qualified plan and are generally exempt.
• Iowa (3.8% flat rate, effective 2026): Iowa transitioned to a flat 3.8% tax rate in 2026 (down from a top rate of 8.53%). More importantly, Iowa fully exempts 401(k), IRA, and pension distributions, and does not tax Social Security. Iowa is now one of the most favorable Tier 2 states for FIRE planners.
• Mississippi: Exempts qualified retirement income including 401(k) distributions, IRA withdrawals, pension income, and Social Security. Income tax rates are 0–5% on wages, but retirement income from qualified plans is excluded.
• Pennsylvania (3.07% flat rate): Pennsylvania exempts retirement income from "eligible retirement plans" — generally 401(k), 403(b), IRA, and pension distributions. Important caveat for early retirees: PA applies this exemption when the plan participant has reached the "normal retirement age" as defined by the plan. Distributions before 59½ via 72(t) SEPP or other methods may be classified as taxable in PA. Verify your specific distribution method with a PA tax professional before assuming zero state tax.
• Michigan (4.25% base rate): Under Public Act 4 of 2023, Michigan phased in an expanded retirement income exemption over 4 tax years (2023–2026). By tax year 2026, most Michigan residents of retirement age can fully exempt qualified retirement income. Specifics depend on birth year and income — verify current eligibility with the Michigan Department of Treasury.

Tier 3: Tax 401(k)/IRA Withdrawals but Exempt Social Security (~35 States)

The majority of states fall here: they tax traditional 401(k) and IRA withdrawals as ordinary income, but they don't tax Social Security benefits. For early retirees who haven't claimed Social Security yet, this tier is the most relevant category to plan around.

Tier 4: States That Also Tax Social Security (8 States)

Eight states tax Social Security benefits at the state level in 2026:³ Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. Most use income-based thresholds, so not all retirees actually pay — but the exposure exists.

For early retirees, this matters less in the first decade or two of retirement, when most FIRE practitioners aren't claiming Social Security yet. But once you're in your 60s and 70s and drawing SS alongside 401(k) income, Tier 4 states can create compounding MAGI problems: the state taxes SS at the same time federal taxation of SS is increasing (see Early Retirement Tax Planning for the federal SS taxation rules).

• Colorado: 4.4% flat. Taxes SS benefits, but residents 65+ can deduct all federally taxable SS from state income. Early retirees under 65 may owe CO state tax on SS.
• Minnesota: 5.35–9.85% brackets. Exempts SS for single filers with AGI ≤ $86,410 and MFJ ≤ $110,780 (2026). Above those thresholds, full SS inclusion — one of the least favorable states for retirees with any meaningful investment income.
• New Mexico: 1.7–5.9% brackets. Exempts SS for single filers earning ≤ $100,000 and MFJ ≤ $150,000. Popular retirement destination but the SS tax is a factor for higher earners.
• Utah: 4.55% flat. Offers an elderly credit that phases out at higher incomes; in practice, many retirees with moderate income pay little or no state tax on SS. But combined 401(k) + SS income can reduce the credit significantly.
• Vermont: 3.35–8.75%. Exempts SS below $65,000 AGI (single) / $85,000 (MFJ); above those thresholds, up to 85% of SS is state-taxable.

California Deep Dive: The Hardest State for FIRE Planners

California deserves its own section because it's where a disproportionate share of FIRE-eligible workers live — tech compensation is concentrated there — and its tax treatment of retirement income is among the most costly in the country.⁴

What California taxes: All traditional 401(k) and IRA withdrawals are fully taxed as ordinary income at California rates (1–13.3%). Roth conversions face the same rates. Long-term capital gains are taxed identically to ordinary income (no reduced state rate). Social Security is the one exemption — CA does not tax SS benefits.

California's early retiree tax problem in practice: An early retiree drawing $70,000/yr from a traditional IRA + $30,000 Roth conversions = $100,000 of CA taxable income. At $100K, California's marginal rate is approximately 9.3%, with effective rate around 7–8%. That's $7,000–$8,000/yr in state tax beyond federal — a cost that adds roughly $200,000–$229,000 to your FI number at a 3.5% SWR.

CA domicile rules: Moving out of California requires full domicile establishment elsewhere. California is well known for auditing former residents who retain California ties: property ownership, business interests, regular visits, voter registration, or professional licenses. If you retire and move to Nevada or Texas but spend 4 months per year at a California vacation home, the California Franchise Tax Board may still consider you a California resident. This is a real planning issue — work with a CPA before the move, not after.

Washington State: The Capital Gains Gotcha

Washington has no income tax, making it a Tier 1 state for most retirement income. However, Washington enacted a 7% capital gains tax effective 2023 on long-term capital gains exceeding approximately $262,000 (2026 threshold, inflation-indexed annually).⁵ Gains above $1 million are taxed at 9.9%.

What's exempt from the WA capital gains tax: Gains inside qualified retirement accounts (401k, 403b, IRA, Roth IRA) are fully exempt. The tax applies to taxable brokerage account LTCG above the threshold. For most early retirees, this is manageable: the $262,000 threshold is high enough that typical annual taxable account rebalancing won't trigger it. But if you're a tech worker with a large taxable stock concentration (pre-FIRE RSU accumulation, appreciated index funds) planning large liquidations in a single year, WA's capital gains tax is a factor to model.

State Tax and Roth Conversion Timing

State tax dramatically affects Roth conversion strategy. The federal case for conversions is strong for most early retirees: fill the 12–22% bracket during the golden window before RMDs at 73/75. But the state case depends entirely on your state tier.

Converting in Tier 1 (no income tax) or moving there first: If you're planning to relocate to a no-income-tax state before or at retirement, delaying Roth conversions until after you're a resident there saves the full state rate on every dollar converted. On $500,000 of conversions at 8% California state rate, that's $40,000 in savings. The one caveat: establish true residency before converting. Don't convert in December and file as a partial-year California resident expecting zero CA state tax on the portion "while you were in Texas."

Converting in Tier 2 states (retirement income exempt): Check your specific state's treatment of conversions before assuming they're exempt. Illinois generally treats Roth conversions as exempt distributions from qualified plans — effectively $0 state tax. Iowa follows a similar rule. Pennsylvania is more complex: verify with a PA CPA whether a conversion before 59½ qualifies as an exempt retirement distribution.

Converting in Tier 3 states (tax 401k/IRA): Conversions are taxed at full state ordinary income rates — same as regular withdrawals. A 10-year Roth conversion ladder running $50,000/yr in California at 9.3% marginal = $4,650/yr × 10 years = $46,500 in additional state tax vs converting after moving. If you're in a high-tax Tier 3 state with relocation plans, strongly consider the conversion timing relative to the move.

For the full federal and MAGI analysis of Roth conversion timing, see Roth Conversion Ladder and Withdrawal Order: Managing the Four Constraints.

Key State Tax Facts That Change Your FI Number

When you're building your FIRE number, the standard approach is: annual spending ÷ SWR = portfolio target. But annual spending includes state taxes — and state taxes are a function of both your income level and where you live. If you're planning to retire in California on $90,000/yr of portfolio draws and projecting ~$7,000 of state taxes, those $7,000/yr need to be in your FI number:

• Spending $90K + $7K CA state tax = $97K total spending need
• FI number at 3.5% SWR = $2.77M (not $2.57M)
• The $200K difference is the capitalized cost of California taxes

Many FIRE planners build their FI number around pre-tax spending, then discover in year one that state taxes are a significant line item they didn't model. Avoiding this requires either planning the move first, or explicitly including state taxes in the spending estimate from the beginning.