5 States That Don’t Tax Your Retirement Income

2. Alabama

Insider Monkey Score: 16

Tax Friendliness: Tax-friendly

Cost of Living Index: 88.3

Alabama doesn’t completely exempt retirement income from taxes, so what brings it into our list of top five states that don’t tax retirement income? It’s a surprisingly low cost of living. While the state fully taxes withdrawals from retirement accounts, living expenses in the state are 11.7% lower than the national average. Income from retirement accounts is taxed at regular income rate, with this state income tax rate ranging between 2% to 5%.