Pensions are considered ordinary income in the eyes of the IRS. So is Social Security income above the federal tax threshold. Adding state tax liabilities to your pension on top of taxes on Social Security income is a poor retirement strategy. If you are lucky enough to have a pension, relocating to a state that doesn’t tax Social Security or pensions is a sound retirement strategy.
Sadly, only twelve states don’t tax Social Security or pensions. These include Alabama, Alaska, Florida, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming. That doesn’t mean you’re totally out of luck if you don’t want to move to one of these states. Other states have retirement friendly tax policies. For example, South Carolina doesn’t tax Social Security income, and it offers seniors a $15,000 deduction on any other type of retirement income, like pensions. Property taxes there are among the lowest nationwide. Research state income and property taxes as part of your retirement planning if you want to relocate.