Tennessee Taxes on Pensions, IRAs, and 401(k)s

If you’re retired or planning to retire in Tennessee, the state is considered very retirement-friendly.

Tennessee does not tax income from pensions or retirement accounts at the state level.

You can feel reassured knowing Tennessee does not tax pensions, IRA withdrawals, or 401(k) distributions.

Tennessee Income Tax Overview

Tennessee does not have a state income tax on wages or retirement income.

That means:

• No state tax on pension income

• No state tax on IRA withdrawals

• No state tax on 401(k) distributions

• No state tax on Social Security benefits

You only file a federal income tax return, not a Tennessee state income tax return.

Pension Income in Tennessee

Pension income is not taxed in Tennessee.

This includes:

• Private employer pensions

• Government pensions

• Federal civil service pensions

• Military retirement pay

Even if your pension is taxable at the federal level, Tennessee does not tax it.

Example:
If you receive $45,000 per year from a private pension, you owe federal income tax but no Tennessee state income tax.

IRA Withdrawals

Traditional IRA withdrawals are not taxed at the Tennessee state level.

This includes:

• Regular withdrawals

• Required Minimum Distributions (RMDs)

• Early withdrawals

Roth IRA qualified distributions are also not taxed at the state level.

Example:
If you withdraw $30,000 from a traditional IRA, you owe federal tax but no Tennessee state tax.

401(k) and 403(b) Withdrawals

Distributions from 401(k) and 403(b) plans are not taxed by Tennessee.

This applies to both periodic payments and lump-sum withdrawals.

Only federal income tax applies.

Investment and Capital Gains Income

Tennessee previously taxed certain investment income under the Hall Income Tax, but that tax has been fully repealed.

There is currently no state income tax on:

• Interest income

• Dividend income

• Capital gains

Property and Sales Taxes

While Tennessee does not tax retirement income, it does rely more heavily on:

• Sales tax

• Property tax

Sales tax rates can be relatively high compared to other states.

Tennessee offers property tax relief programs for qualifying seniors based on age and income.

Estate and Inheritance Taxes

Tennessee does not have a state estate tax or inheritance tax.

This simplifies estate planning for most retirees.

Planning Tips for Tennessee Retirees

• Retirement income is not taxed at the state level

• Federal income tax still applies

• Consider the impact of sales tax on spending

• Review eligibility for senior property tax relief

• Plan withdrawals based on federal tax brackets

Tennessee is often viewed as one of the more tax-friendly states for retirees due to the absence of a state income tax.

💻 Electronic Filing Recommendation

Since Tennessee has no state income tax, you only need to e-file your federal return:

• Faster IRS processing

• Direct deposit for refunds

• Reduced math errors

• Secure digital recordkeeping

Tax software makes reporting pension and retirement withdrawals simple at the federal level.

Final Thoughts

Tennessee does not tax pensions, IRA withdrawals, or 401(k) distributions. Retirees only pay federal income tax on these sources of income.

While property and sales taxes still apply, the absence of a state income tax makes Tennessee an attractive option for many retirees.