Mostly taxed
How Montana taxes retirement income
Montana rebuilt its income tax starting in 2024 so that it begins from federal taxable income. That means the part of your Social Security the IRS taxes is also taxed by Montana, and pensions, 401(k), 403(b), 457(b) and IRA withdrawals are taxed in full. The old partial pension exclusion was repealed in the same overhaul.
In its place, everyone 65 or older gets a flat subtraction: $5,660 for 2025, or $11,320 for a married couple filing jointly when both are 65 or older. The amount rises with inflation each year. Military retirees who keep working in Montana can exclude part of their military retirement for five years.
Montana has no general sales tax, which offsets some of the income tax for retirees who spend most of what they receive.
Questions
Does Montana tax Social Security?
Yes, to the same extent the IRS does. If part of your benefit is taxable federally, that part is taxable in Montana.
Is there any retirement exclusion?
Not for pensions specifically. Taxpayers 65 and older get a flat subtraction of $5,660 each (2025), adjusted for inflation.
Does Montana tax MPERA or TRS pensions?
Yes. Montana public pensions are taxed like other pensions.