Partly taxed
How Arkansas taxes retirement income
Arkansas does not tax Social Security. For other retirement income, each taxpayer can exclude the first $6,000 a year of benefits from public or private employer retirement plans, including pensions, 401(k) plans, profit-sharing and thrift plans, or from a traditional IRA taken after 59½.
The $6,000 is a single limit per person across all plans, not $6,000 per plan. Anything above it is taxed at Arkansas’s normal rates, which top out at 3.9%. A married couple who both have retirement income can each claim $6,000. If you made after-tax contributions to your plan, you recover those first, and then the $6,000 applies to the rest.
Here is how it works for a retired Arkansas teacher with a $36,000 ATRS pension. The first $6,000 is exempt and $30,000 is taxable, which at Arkansas rates comes to roughly $1,000 a year after the standard deduction.
Questions
Does Arkansas tax teacher pensions?
Yes, above the first $6,000 a year per person.
Do IRA withdrawals count toward the $6,000?
Yes. IRA distributions after 59½ qualify, but the $6,000 is one total for all your retirement income.
Does Arkansas tax Social Security?
No.