New Mexico retirement taxes at a glance (2026)
| State income tax | Graduated, top rate 5.9%New Mexico has six brackets from 1.5% to 5.9%. The top rate applies to income above $210,000 for single filers. |
|---|---|
| Social Security | Not taxedSocial Security is exempt if adjusted gross income is under $100,000 (single), $150,000 (joint, head of household, surviving spouse), or $75,000 (married filing separately). Above those limits, the federally taxable part is taxed. |
| Pensions | TaxedPensions are taxed at regular rates. Taxpayers 65 or older (or blind) with lower incomes can deduct up to $8,000 of income. Exclusion: up to $8,000 (age 65+). |
| 401(k) and IRA withdrawals | TaxedIRA and 401(k) withdrawals are taxed at regular rates, subject to the same income-limited $8,000 deduction for people 65 and older. |
| Government pensions | TaxedGovernment pensions are taxed like other pensions. |
| Military retirement pay | Partly taxedUp to $30,000 of military retirement pay is exempt each year. A 2024 law removed the sunset of this exemption starting in 2025 and extended it to surviving spouses. |
| Estate tax | No |
| Inheritance tax | No |
| Property tax help for seniors | Homeowners 65 and older with modified gross income up to $44,200 can freeze their home's taxable value. A rebate of up to $250 is available to people 65+ earning under $16,000. |
| Sales tax | New Mexico uses a gross receipts tax; combined state and local rates range from about 5.25% to 9.44%. |
Recent changes and good to know
- Brackets were restructured starting in tax year 2025 (1.5% to 5.9%).
- A 2026 interim committee endorsed a bill to remove the $30,000 cap on the military retirement exemption; its status was not verified.
- Residents age 100 or older who are not dependents pay no state income tax.
How to lower your retirement taxes in New Mexico
- Mix your income sources. Roth IRA withdrawals are tax-free at the federal level and generally in New Mexico 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 New Mexico tax retirement income?
Partly. New Mexico exempts Social Security for most retirees and up to $30,000 of military pay, but taxes pensions and IRA/401(k) withdrawals.
Does New Mexico tax Social Security?
Social Security is exempt if adjusted gross income is under $100,000 (single), $150,000 (joint, head of household, surviving spouse), or $75,000 (married filing separately). Above those limits, the federally taxable part is taxed.
Does New Mexico tax pensions?
Pensions are taxed at regular rates. Taxpayers 65 or older (or blind) with lower incomes can deduct up to $8,000 of income.
Does New Mexico tax 401(k) and IRA withdrawals?
IRA and 401(k) withdrawals are taxed at regular rates, subject to the same income-limited $8,000 deduction for people 65 and older.
Does New Mexico tax military retirement pay?
Up to $30,000 of military retirement pay is exempt each year. A 2024 law removed the sunset of this exemption starting in 2025 and extended it to surviving spouses.
Sources (last verified 2026)
- New Mexico State Taxes: What You'll Owe in 2026 — AARP (2026-03-18)
- State Individual Income Tax Rates and Brackets, 2026 — Tax Foundation (2026-02-17)
- Removing the limit on the income tax exemption for uniformed services retirement pay (endorsed draft) — New Mexico Legislature (2026)
- HB 264 (2024) — New Mexico Legislature (2024)
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.