Find out exactly which retirement income Alabama taxes — and how much you owe. Social Security, state pensions, military retirement, 401(k)s, and IRAs each get different treatment. Alabama is one of the most retirement-friendly states in the Southeast, but the rules are specific.
Alabama has some of the strongest retirement income exemptions in the Southeast. If your income comes primarily from Social Security and a government pension, you may owe zero Alabama income tax. The main source of Alabama retirement tax exposure is traditional 401(k) and IRA withdrawals.
| Income Source | Alabama Tax Treatment | Notes |
|---|---|---|
| Social Security benefits | Fully Exempt | All types: retirement, survivor, SSDI |
| Alabama TRS / ERS pension | Fully Exempt | RSA retirement — state teachers and employees |
| Federal government pension | Fully Exempt | FERS, CSRS, and similar federal plans |
| Military retirement pay | Fully Exempt | Regular military, Reserve/Guard, SBP annuities |
| Roth IRA / Roth 401(k) | Fully Exempt | Qualified distributions only |
| Traditional 401(k) withdrawals | Taxable (2%–5%) | Age 65+: first $6,000/person excluded |
| Traditional IRA withdrawals | Taxable (2%–5%) | Age 65+: first $6,000/person excluded |
| Investment income | Taxable (2%–5%) | Dividends, interest, capital gains |
| Part-time wages | Taxable (2%–5%) | Subject to normal income tax brackets |
Alabama allows taxpayers age 65 or older to exclude up to $6,000 of taxable retirement income from state income taxes each year. For married couples filing jointly where both spouses qualify, the exclusion doubles to $12,000. This exclusion applies to traditional 401(k) and IRA withdrawals — it does not apply to wages or investment income.
This exclusion significantly reduces Alabama tax for retirees with modest 401(k) withdrawals. A single retiree age 65+ withdrawing $6,000 or less from a traditional IRA would owe zero Alabama income tax on those withdrawals after the exclusion — before any standard deduction or personal exemption is applied.
Alabama has one of the simpler state tax structures. Taxable retirement income is taxed at three rates — see the full breakdown including deductions and exemptions in our Alabama Income Tax Calculator.
| Filing Status | Income Range | Rate |
|---|---|---|
| Single / MFS / HOH | $0 – $500 | 2% |
| $501 – $3,000 | 4% | |
| Over $3,000 | 5% | |
| Married Filing Jointly | $0 – $1,000 | 2% |
| $1,001 – $6,000 | 4% | |
| Over $6,000 | 5% |
If you are a member of the Retirement Systems of Alabama (TRS or ERS), your benefit is calculated as:
Example: A teacher with 30 years of service and a $55,000 final average salary receives: 30 × $55,000 × 2.0125% = $33,206/year ($2,767/month). This amount is fully exempt from Alabama income tax.
Retirement eligibility: Tier 1 (members before Jan 1, 2013) — age 60 + 10 years, or any age + 25 years. Tier 2 (on or after Jan 1, 2013) — age 62 + 10 years, or age 60 + 30 years.
| State | SS Exempt? | Govt Pension Exempt? | 401k / IRA | Top Rate |
|---|---|---|---|---|
| Alabama | Yes | Yes | Taxable | 5% |
| Florida | No income tax | No income tax | No income tax | 0% |
| Georgia | Yes | Up to $65k | Taxable | 5.39% |
| Tennessee | No income tax | No income tax | No income tax | 0% |
| Mississippi | Yes | Yes | Exempt | 4.7% |
Alabama compares favorably to Georgia (which taxes 401k/IRA above a threshold) but trails Florida, Tennessee, and Mississippi — which are fully or mostly income-tax free. For retirees with government pensions and Social Security, Alabama's effective tax burden can be very close to zero.
Last updated: May 2026 · Sources: Alabama DoR — Exempt Income, Retirement Systems of Alabama (RSA), SmartAsset Alabama Retirement Taxes