How retirement income is taxed
in Texas
Texas has no state income tax — every dollar of retirement income is free from state taxation. Here's the full tax picture and why federal planning still matters.
Texas's no-income-tax
advantage
Texas is one of nine states with no personal income tax. For retirees, this means every dollar withdrawn from a 401(k), IRA, pension, or annuity is free from state-level taxation. Social Security, investment gains, and Roth distributions are also untouched. There is no bracket to manage, no state return to file, and no retirement income exclusion to calculate.
For retirees relocating from high-tax states, the savings are immediate and significant. A retiree withdrawing $70,000 per year from a traditional IRA saves roughly $3,500 to $5,500 per year in state income tax compared to living in a typical progressive-tax state. Over a 25-year retirement, that compounds into meaningful additional wealth.
Texas has no state income tax. Property taxes and sales taxes vary by locality.
What retirees
don't pay
Texas's no-income-tax policy covers every form of personal income. There are no carve-outs, phase-outs, or income thresholds — all income types are simply exempt from state taxation.
No state tax. Traditional and Roth withdrawals are both state-tax-free. Federal tax applies to traditional account withdrawals as ordinary income.
No state tax. Benefits are not taxed at the state level. Federal taxation (up to 85%) still applies based on your combined income.
No state tax. Government, military, and private pensions are all state-tax-free. Federal tax applies as ordinary income.
No state tax on capital gains, dividends, or interest. Federal capital gains rates still apply to taxable brokerage account gains.
Federal taxes
still apply
No state income tax does not mean no taxes. Federal income tax applies to traditional 401(k) and IRA withdrawals at ordinary income rates (10% to 37%), pension income, and up to 85% of Social Security benefits. Required minimum distributions starting at 73 force withdrawals from tax-deferred accounts whether you need the income or not.
Roth conversions remain a smart strategy in Texas. Since you pay only federal tax on the conversion (no state tax layer), the cost of converting is lower than in most states. Converting traditional IRA balances to Roth before 73 reduces future RMDs and creates tax-free income in later years.
Withdrawal sequencing and Social Security timing are equally important here as in any state. The federal tax code drives your after-tax income regardless of where you live. For a complete overview, see how to reduce taxes in retirement.
Model your Texas
retirement
Even without state income tax, your federal tax situation deserves careful modeling. A year-by-year projection shows how RMDs, Social Security, and withdrawal timing affect your federal bracket across every year of retirement.
Drawdown Arc's projection engine calculates your federal tax burden for every year. Set your state to Texas (or "None") and the model focuses on federal brackets, Social Security taxation, and RMD timing. Enter your account balances, pension, and Social Security timing to see your after-tax income year by year.
State tax modeling is a Pro feature. The free calculator shows your full federal tax projection — upgrade to Pro to compare your Texas situation against other states.
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