How ALABAMA Taxes Retirees Blog

Alabama has the 2nd lowest property tax in the United States. Which is a huge win for the residents there.

But citizens of Alabama pay among the highest sales taxes in the nation. However, if you just looked at the state sales tax, you may think you wouldn’t pay much in Alabama.

But you’d be wrong. As the localities can add their own sales tax to what the state charges. And they do, more than double the state sales tax actually.

Lastly, when it comes to income tax Alabama is very favorable for retirees. Social Security is exempt. As are all government pensions AND, and this is huge, qualified private pensions.
What is a qualified private pension? Well, here is what the state says. “Payments from a Defined Benefit Retirement Plan in accordance with IRC 414(j).”
And here is a 29 page list of various companies who have NOTIFIED the state that their pension is qualified. https://revenue.alabama.gov/wp-conten…
AL says that this list is by no way exhaustive.

So, I would imagine it’d be safe to assume your private pension is free of taxes in the great state of Alabama.

What is NOT free of state tax though?

You got it! 401ks and IRAs.

So think long and hard before you roll your pension plan over to an IRA. As IRAs are fully taxed as ordinary income.

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