Strategizing Retirement Income in 2025: Navigating States That Tax Social Security Benefits

As the 2025 tax season approaches, retirees must sharpen their focus on state-level tax rules that could quietly erode their Social Security income. While federal taxation of Social Security benefits is well-documented, many retirees overlook the fact that nine states still impose taxes on these benefits, each with unique income thresholds and exemptions. For savvy investors, understanding these nuances—and deploying tax-efficient strategies—is critical to preserving hard-earned retirement savings.

The Nine States and Their Rules

According to a report by , the 2025 states taxing Social Security benefits are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia [1]. Here’s a snapshot of their rules:

1. Colorado: Retirees aged 65+ can deduct all federally taxed Social Security benefits, while those aged 55–64 may deduct up to .
2. Connecticut: Benefits are fully exempt for single filers with AGI under and joint filers under . Above these thresholds, up to 25% of benefits may be taxed [1].
3. Minnesota: Married filers with AGI ≤ and singles with AGI ≤ enjoy full exemption [2].
4. Montana: Benefits are taxed for singles with AGI > and joint filers with AGI > [1].
5. New Mexico: Single filers with AGI ≤ and joint filers ≤ get a full deduction [1].
6. Rhode Island: Exemptions apply for AGI below (single) and (joint) [1].
7. Utah: A flat 4.65% tax applies, but a tax credit phases in for singles with AGI ≤ and joint filers ≤ [1].
8. Vermont: Full exemption for singles with AGI ≤ and joint filers ≤ [1].
9. West Virginia: 65% of benefits are exempt in 2025, with a full exemption planned by 2026 [1].

Actionable Strategies for Tax Efficiency

1. Roth IRA Conversions: A Shield Against State Taxes
For retirees in states with strict AGI thresholds (e.g., Connecticut’s $75,000 for singles), Roth IRA conversions can be a game-changer. By converting traditional IRA assets to a Roth IRA—paying taxes upfront—you lock in tax-free growth and withdrawals. This reduces future taxable income, helping you stay under state exemption thresholds. For example, , maximizing the $20,000 deduction for Social Security benefits.

2. Timing Your Benefit Claims
The timing of when you claim Social Security can significantly impact your AGI. , which could lower your AGI in earlier years—critical for states like Minnesota, . Additionally, coordinating benefit claims with other income sources (e.g., part-time work or investment gains) can help avoid crossing state thresholds.

3. Charitable Deductions and QCDs
Qualified Charitable Distributions (QCDs) allow retirees aged 70.5+ to donate directly from IRAs, bypassing AGI entirely. For states like Utah, where a tax credit is available for lower AGI, QCDs can reduce taxable income and amplify the credit. Similarly, itemizing deductions for charitable gifts (even for non-QCDs) can lower AGI, helping retirees in Montana or Vermont stay under their respective thresholds.

4. Leverage State-Specific Loopholes
Colorado’s age-based deductions and New Mexico’s generous AGI thresholds offer unique opportunities. Retirees in Colorado should prioritize reaching age 65 to unlock full deductions, .

The Bigger Picture: Plan for Change

States like West Virginia are phasing out Social Security taxes, while others (e.g., Utah) adjust exemption thresholds annually. Retirees should monitor legislative updates and adjust strategies accordingly. For instance, a West Virginian in 2025 might delay major withdrawals, knowing the tax will vanish entirely by 2026.

Conclusion

Tax-efficient retirement planning in 2025 demands more than federal considerations—it requires a granular understanding of state rules. By leveraging Roth conversions, timing strategies, and charitable deductions, retirees in the nine affected states can minimize their tax burden and maximize their Social Security benefits. As always, consult a tax advisor to tailor these strategies to your unique situation.

Source:[1] Kiplinger, "States That Tax Social Security Benefits in 2025" [https://www.kiplinger.com/retirement/social-security/603803/states-that-tax-social-security-benefits][2] Minnesota House Research Division, "Taxation of Social Security Benefits in Minnesota" [https://www.house.mn.gov/hrd/issinfo/sstaxes.aspx]