Alabama retirement taxes at a glance (2026)
| State income tax | Graduated, top rate 5%Alabama taxes income at 2% to 5%. For single filers, the 5% rate applies to taxable income above $3,000. |
|---|---|
| Social Security | Not taxedAlabama does not tax Social Security benefits. |
| Pensions | Not taxedPayments from defined benefit pension plans are exempt at any age. Other taxable retirement income (for example, defined contribution plan payouts) gets the age-65 exclusion of up to $6,000 per person. Exclusion: up to $6,000 (age 65+). |
| 401(k) and IRA withdrawals | Partly taxedIRA and 401(k) distributions are taxable, but a taxpayer age 65 or older can exclude the first $6,000 of taxable retirement income per person. |
| Government pensions | Not taxedFederal civil service, Alabama teachers, state employees, judicial and TVA pensions are exempt. |
| Military retirement pay | Not taxedMilitary retirement pay is exempt from Alabama income tax. |
| Estate tax | No |
| Inheritance tax | No |
| Property tax help for seniors | Homeowners age 65 or older, or permanently disabled or blind, are exempt from the state portion of property tax on their homestead. |
| Sales tax | State sales tax is 4%; average combined state and local rate is about 9.46% (AARP, 2026). |
Recent changes and good to know
- HB388 (2025) would have raised the age-65 exclusion from $6,000 to $12,000 for 2026, but the bill died on 2025-05-14. The exclusion stays at $6,000.
- The $6,000 exclusion took effect for tax year 2023.
How to lower your retirement taxes in Alabama
- Mix your income sources. Roth IRA withdrawals are tax-free at the federal level and generally in Alabama too, so a Roth conversion before retirement can cut state tax later. Try the Roth conversion calculator.
- Watch federal Medicare costs. Large IRA withdrawals can raise your Medicare premiums. Check the 2026 IRMAA brackets.
- Think about your heirs. See what your IRA will really cost your family with the Family Tax Rate calculator.
- Comparing states? These have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming.
Frequently asked questions
Does Alabama tax retirement income?
Mostly no: Alabama exempts Social Security, defined benefit pensions and military pay, but taxes IRA and 401(k) withdrawals above a $6,000 exclusion for people 65 and older.
Does Alabama tax Social Security?
Alabama does not tax Social Security benefits.
Does Alabama tax pensions?
Payments from defined benefit pension plans are exempt at any age. Other taxable retirement income (for example, defined contribution plan payouts) gets the age-65 exclusion of up to $6,000 per person.
Does Alabama tax 401(k) and IRA withdrawals?
IRA and 401(k) distributions are taxable, but a taxpayer age 65 or older can exclude the first $6,000 of taxable retirement income per person.
Does Alabama tax military retirement pay?
Military retirement pay is exempt from Alabama income tax.
Sources (last verified 2026)
- Income Exempt from Alabama Income Taxation — Alabama Department of Revenue (2026-09-24)
- Alabama State Taxes: 2026 Tax Season — AARP (2026-03-17)
- AL HB388 (2025) bill status — BillTrack50 (2025-05-14)
- Alabama caps private defined benefit pensions at $6,000; Ala. Code 40-18-19(a)(6) exempts them in full — PolicyEngine (GitHub issue) (2026)
Educational content only, not tax, legal or investment advice. Plans and tax laws change; confirm details with your employer's plan documents or your state revenue department. Smart Financial Lifestyle is not affiliated with any employer named on this site.