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We list the most tax-friendly state for retirees last. MA pensions qualify for a $6,000 pension exemption. Income Tax Range: The Illinois income tax rate is a flat 4.95%. If you do not allow these cookies you may not be Some states have pension exclusions with limitations based on age and/or income. On the federal level, all three of these income sources can be taxable. Rather, they are taxed by the state where you are a resident when the money is distributed. Future US, Inc. Full 7th Floor, 130 West 42nd Street, Annuities provide steady income in retirement, but some financial planners prefer alternatives. Tennessee Valley Authority Pension System benefits. Does the IRS Audit Some Taxpayers More Than Others? If you need assistance, please contact the Massachusetts Department of Revenue. Kentucky (some school districts) Louisiana Maine Massachusetts Missouri Nevada Ohio Rhode Island (some school districts) Texas If you are a teacher in one of those states, the rules for collecting a Teacher's Retirement System (TRS) pension and Social Security can be confusing and maddening to try and figure out. Other states exempt TSP distributions below a certain threshold from taxation. Alaska, Nevada, Washington, and Wyoming don't have state income taxes at all, and Arizona, California, Hawaii, Idaho, and Oregon have special provisions exempting Social Security benefits from state taxation. View other states' tax treatment of out-of-state government pensions The subtraction includes all federally taxable pension income, annuity income and IRA distributions, except for allowed deductions for pickup contributions. The Silver State won't tax your pension incomeor any of your other income, for that matter, because it doesn't have an income tax. Pensions: Up in Alaska, you don't have to pay income tax on your pensionor on any income, for that matter. The rest of the states take a variety of approaches to taxing retirement income. If only 1 spouse has retirement income, the exclusion is limited to $6,000. Tax info: 502-564-4581 or, Over 65 retirement income exclusion up to $6,000 (single). Join today and save 25% off the standard annual rate. The Many Definitions of Modified Adjusted Gross Income (MAGI).