Partly taxed
How Delaware taxes retirement income
Delaware does not tax Social Security or Railroad Retirement benefits. Pensions and retirement savings share one exclusion: from age 60, each person can exclude up to $12,500 a year of pension income plus “eligible retirement income,” which covers IRA, 401(k) and 457(b) withdrawals as well as dividends, interest, capital gains and net rental income. Under 60, the exclusion is $2,000 of pension income only, though military pensions get the full $12,500 at any age.
A married couple who are both 60 or older can each claim the exclusion, so up to $25,000 a year comes off a joint return. Delaware also offers an extra exclusion for people 60 and older or disabled with modest income. Income above the exclusions is taxed at rates from 2.2% to 6.6%.
Delaware has no sales tax, and its property taxes are among the lowest in the country, which is a large part of its appeal to retirees from neighboring states.
Questions
Does Delaware tax pensions?
Only above the exclusion. At 60 and older, up to $12,500 per person of pension and eligible retirement income is excluded each year.
Are IRA and 401(k) withdrawals included in the exclusion?
Yes. They count as eligible retirement income and share the same $12,500 limit as pensions.
Does Delaware tax Social Security?
No. Social Security and Railroad Retirement benefits are fully exempt.