Retiring in Montana: What the State Actually Takes

On the ordinary retirement profile — $34,000 of Social Security and $61,000 of plan distributions — Montana takes $4,007 a year in state income tax.

That is the number people compare, and it is the smallest of three. Property tax adds about $3,801 on the state's $527,848 median home, and insurance another $3,265. The three together come to $11,073, placing Montana 43rd of 50.

A note before you start. This is general education, not tax advice. Every Montana figure comes from this site's own fifty-state income-tax dataset and its retirement tax engine, computed for a single filer aged 70 unless stated otherwise; property tax, median home price and insurance figures come from the site's core state dataset. Rates are for tax year 2026. Property tax is assessed locally in most states, so the effective rate here is a statewide figure rather than your county's.

1. What Montana takes from retirement income

On Social Security. Montana taxes Social Security, but only the federally taxable portion, and applies no state threshold of its own. Because Montana begins from federal taxable income, whatever survives the federal IRC section 86 computation — provisional income measured against the federal base amounts of $25,000 and $32,000, capped at 85% — is simply what Montana taxes. Recorded as 'taxed' rather than 'taxed-above-threshold' for that reason: there is no Montana threshold to record, and inventing one would misdescribe the mechanism. Montana's own separate Social Security addition, which historically computed a larger taxable amount than federal, was repealed effective 2024-01-01 — the Department lists 'taxable Social Security Benefits addition' among the Schedule I additions repealed. Mca 15-30-2110, which some sources still cite, is repealed; the operative statute is 15-30-2120, whose addition and subtraction lists contain no Social Security item at all. The federal OBBBA senior deduction flows through to Montana and blunts this substantially.

On 401(k) and IRA distributions. Fully taxable. The former partial pension, annuity and IRA exemption of roughly $4,640 was repealed effective 2024-01-01, along with the partial interest-income deduction for filers 65 and over and the partial retirement disability deduction. There is no replacement retirement-income exemption — what replaced it is a flat age-based subtraction that applies regardless of income source, described in the record notes. Publication 1 states plainly: 'Generally, pensions and annuities are taxable in Montana.' Railroad Retirement Tier I and Tier II benefits are separately subtracted.

2. The rule that decides your Montana bill

Private and public pensions are treated identically — both fully taxable. Montana has no state, federal, PERS or TRS pension exclusion; confirmed by absence from mca 15-30-2120's subtraction list, from Publication 1's subtraction list, and from Form 2 Schedule I. Under mca 15-30-2120(3)(n) the subtraction is the lesser of 50% of military retirement income OR the filer's Montana-source earned income — wages, business income, or farm income earned in Montana. A fully retired military retiree with no Montana earned income therefore gets zero, which is why the provision is known as the working military retiree exemption. It also carries residency conditions (broadly, becoming a Montana resident after 2023-06-30, or having been a resident before first receiving the retirement income and remaining one) and a five consecutive year limit, and requires Form WMRE. Survivor benefits get up to 50% on the same conditions. SB 93 of 2025 removed the previous 2033 expiration.

Montana starts from federal taxable income, not federal AGI — federal AGI less the federal standard or itemized deduction, and expressly excluding the federal qualified business income deduction. It has no state standard deduction of its own and no personal or dependent exemptions; the figures recorded in standardDeduction are the federal amounts Montana adopts by conformity.

Not modelled: a flat $5,660 subtraction for each taxpayer aged 65 or over ($11,320 where both spouses qualify) under mca 15-30-2120(3)(g), applied on Form 2 page 1 line 6 with NO income limit. New for 2026 and also not modelled: a $3,000 subtraction for a qualified volunteer firefighter or emergency care provider under 15-30-2120(3)(o).

3. What Montana charges at three income levels

The same state, three retirements. All figures are for a single filer aged 70.

The marginal rate at the typical profile is 5.7%. That is what an extra dollar of distribution costs — a larger number than the 4.2% effective rate, and the one that matters when deciding how much to withdraw.

A married couple with $48,000 of Social Security and $62,000 of distributions pays $3,657.

4. Property tax, and why it lands harder in retirement

An effective rate of 0.7% on the state's $527,848 median home is about $3,801 a year.

For a retiree this is a harder cost than income tax, and the reason is structural: property tax is levied on the house, while retirement income falls. A bill sized to a working income arrives every year after the income has gone.

It is also assessed locally almost everywhere, so a statewide effective rate conceals real variation between counties. Treat the figure above as the state's shape rather than as your bill.

Montana does have a homestead provision, and it is the one lever on this line worth understanding.

Montana does not have a traditional flat-dollar homestead exemption. Instead, a major 2025 property-tax reform (HB 231 / SB 542) created a 'Homestead Rate' starting with the 2026 tax year: owner-occupied principal residences (and qualifying long-term rentals, occupied/leased at least 7 months/year) that are affirmatively claimed via an application to the Dept. of Revenue receive a reduced, tiered tax rate versus the higher rate applied to second homes, short-term rentals, and non-residential property. Roughly 80% of homes saw a net tax cut under the reform, averaging over $500/year for those who benefited (on top of a separate, one-time up-to-$400 rebate). Must be actively claimed each year (2026 deadline was March 1, 2026) — not automatic like a traditional exemption.

Two things about homestead rules catch people out after a move. They almost always require the property to be your primary residence, which a snowbird splitting the year has to be able to demonstrate. And several states require an application to the county rather than granting it automatically — a benefit you qualify for and never claimed is worth nothing.

5. Insurance, the line nobody prices

Average home insurance in Montana: $3,265 a year — 36th cheapest of the fifty states.

This is the line almost no retirement comparison includes, and across the country it varies more than income tax does: from Hawaii's $900 to Florida's $8,375, a ninefold spread.

For a retiree it behaves like a second property tax. It rises independently of income, a fixed-income household absorbs the whole increase, and it is a condition of the mortgage if you still have one.

6. What retiring in Montana actually costs

Income tax on the typical retirement profile, plus property tax and insurance on each state's own median home. Montana is shown against its own neighbours in the ranking, and against the extremes.

Montana comes to $11,073, 43rd of 50.

Income tax is 36% of that total. It is the line every comparison leads with and, here, not the largest of the three.

One large caveat, and it matters. Each row uses that state's own median home, and those differ a great deal. So this compares the typical house in each state, not the same house in each state — buying below a state's median improves its figure materially.

7. No special treatment, and what that simplifies

Montana gives retirement income no special treatment. Distributions are taxed as ordinary income at the ordinary schedule, with no age trigger, no source distinction and no phase-out to plan around. Fully taxable. The former partial pension, annuity and IRA exemption of roughly $4,640 was repealed effective 2024-01-01, along with the partial interest-income deduction for filers 65 and over and the partial retirement disability deduction. There is no replacement retirement-income exemption — what replaced it is a flat age-based subtraction that applies regardless of income source, described in the record notes. Publication 1 states plainly: 'Generally, pensions and annuities are taxable in Montana.' Railroad Retirement Tier I and Tier II benefits are separately subtracted. That simplicity cuts both ways. There is nothing to lose by withdrawing more in one year than another, and nothing to gain by waiting — which makes Montana an unusually clean state to plan a withdrawal order in, even though it is not a generous one.

8. What a Roth conversion costs in Montana

Converting $50,000 to a Roth costs an extra $2,825 in Montana tax — 5.7 cents on the dollar.

These are computed, not read off the bracket table, which matters because a conversion large enough to be worth making usually leaves the bracket it started in.

The state's share is the part you can move. Convert in a year you are resident somewhere with no income tax and it is zero; convert here and it is 5.7%. The federal tax is due either way.

9. What part-time work costs here

$20,000 of part-time work costs an extra $1,130 in Montana tax — an effective 5.7% on the earnings.

Compare that with the 5.7% a Roth conversion costs. The state treats the two identically, which keeps the decision a non-tax one.

Two federal rules apply on top and neither depends on your state. Earnings can raise the taxable share of Social Security, and claiming before full retirement age exposes you to the federal earnings test.

10. The order to draw your accounts in

The order you draw accounts in is worth real money, and the right order depends on the state.

Montana applies the same treatment whenever you withdraw, so the order is a federal question rather than a state one — with the exception that the marginal rate is 5.7%, and a year of unusually high withdrawals pays that on the excess.

Smoothing withdrawals across years therefore beats lumping them, modestly. Take a large one-off distribution in a single year and it climbs the bracket schedule; spread the same amount over three and more of it stays low.

Required minimum distributions overrule all of this from 73 onward. Once they begin you must take the calculated amount whether the order suits you or not, which is the argument for drawing down or converting the pre-tax balance in the years before.

11. Or move across the state line

For most people the real alternative to Montana is not Wyoming — it is the state on the other side of the line, near the same family, the same doctors and the same weather.

Wyoming is the cheapest of the group at $3,983, $7,090 below Montana. Whether that is worth a move is a question about your life rather than your spreadsheet — but it is the comparison worth running, because it is the one you could actually act on.

One thing this table cannot show is the county. Property tax is set locally, and the spread inside a single state is routinely wider than the gap between two neighbouring states. A border move to a cheaper state and an expensive county can leave you worse off.

12. If you are moving to Montana from somewhere else

The eight most populous states people leave, measured against Montana on the same three lines.

Montana is cheaper than 1 of these eight. The move is not obviously about cost, on these lines.

A move is not free, and this table does not price it. Transaction costs on both houses run to several per cent of the sale price, and at typical values that is often more than the first two or three years of the saving.

Montana charges no transfer tax on the purchase, which is one closing cost you will not meet here and do meet in most states. Closing costs here run about 1.9% to 2.9% of the price — $10,029 to $15,308 on the median home, which is the real entry fee for the annual saving this article has been describing.

13. Where these Montana figures are approximate

Every income tax figure above comes from this site's own Montana record, and that record notes its own limits. They are reproduced here rather than left in the dataset, because a reader who falls into one of these cases is being quoted a number that is wrong for them.

• The military exclusion is conditional in a way this site's calculator cannot model and no exclusion amount is recorded for that reason.
• A Montana result for an older filer will therefore overstate the tax, materially so for a couple.

None of this affects the property tax or insurance lines, which come from a separate dataset and are not modelled.

If you are in one of the cases above, treat the income tax figure as the shape rather than the amount and get the number from a preparer who can see your actual return.

14. What Montana does not exempt you from

The federal system, entirely. This is the commonest misunderstanding about state retirement taxation, and it is worth stating plainly.

Required minimum distributions still apply. The amount is federal — your prior-year balance divided by an IRS life expectancy factor — and identical in all fifty states. A state changes what the distribution costs you, not whether you must take it.

Social Security is still federally taxable, on the federal provisional-income calculation, whatever your state does with it.

IRMAA still applies, with its two-year lag. A large conversion or distribution raises a Medicare premium two years later regardless of address.

And capital gains are still federally taxed. What Montana adds on top is a separate question from what the federal system takes.

15. Establishing that you actually live here

Any state tax advantage is worth nothing until Montana is your domicile, and the state you left may disagree about when that happened.

High-tax states audit departing residents. The question is not whether you own a home here; it is whether you genuinely abandoned the old domicile. Days spent in each state, voter registration, vehicle registration, where your doctors are and where you claim a homestead all bear on it.

The snowbird case is the risky one. Splitting the year between two states while keeping a home in both is exactly the profile a residency audit is built for. If a plan depends on the saving, count the days from the first year rather than reconstructing them afterwards.

16. Who Montana actually suits

It suits an affluent retiree least. At the affluent profile the bill is $8,809, and whatever exclusion helps a modest income has stopped helping by then.

17. What to check before you decide

Get your county's actual property tax rate, not the state average. Property tax is levied locally almost everywhere, and the spread inside a state is often wider than the spread between states.

Get a real insurance quote on a real address. $3,265 is the state average; construction, roof age and exposure move it a long way.

Work out your own income tax rather than using the profile above. $95,000 split one way is not $95,000 split another, and in Montana the mix between Social Security and distributions changes the answer.

And check what your current state actually charges you before assuming it is worse. On these three lines the ranking surprises people in both directions.

Frequently asked questions

Does Montana tax Social Security? Yes. Montana taxes Social Security, but only the federally taxable portion, and applies no state threshold of its own. Because Montana begins from federal taxable income, whatever survives the federal IRC section 86 computation — provisional income measured against the federal base amounts of $25,000 and $32,000, capped at 85% — is simply what Montana taxes. Recorded as 'taxed' rather than 'taxed-above-threshold' for that reason: there is no Montana threshold to record, and inventing one would misdescribe the mechanism. Montana's own separate Social Security addition, which historically computed a larger taxable amount than federal, was repealed effective 2024-01-01 — the Department lists 'taxable Social Security Benefits addition' among the Schedule I additions repealed.

Does Montana tax 401(k) or IRA withdrawals? Fully taxable. The former partial pension, annuity and IRA exemption of roughly $4,640 was repealed effective 2024-01-01, along with the partial interest-income deduction for filers 65 and over and the partial retirement disability deduction. There is no replacement retirement-income exemption — what replaced it is a flat age-based subtraction that applies regardless of income source, described in the record notes. Publication 1 states plainly: 'Generally, pensions and annuities are taxable in Montana.' Railroad Retirement Tier I and Tier II benefits are separately subtracted.

What about pensions — private, government, or military? A $50,000 pension costs $1,593 if private, $1,593 if a government pension, and $1,593 if military retired pay.

What does retiring in Montana actually cost? Income tax of $4,007 on the typical profile, plus about $3,801 of property tax and $3,265 of insurance on the median home — $11,073, which is 43rd of 50.

Is Montana a cheap state to retire in? On these three lines it ranks 43rd of 50. Whether that makes it cheap for you depends far more on the house than on the tax code.

What does a Roth conversion cost in Montana? An extra $2,825 in state tax on $50,000 converted, and $5,650 on $100,000. That is 5.7% of the amount converted, on top of the federal tax.

Does part-time work get taxed differently from my 401(k) withdrawals? $20,000 of part-time earnings costs $1,130 in state tax, an effective 5.7%.

Would a neighbouring state be cheaper than Montana? Wyoming is the cheapest of Montana and its neighbours at $3,983 against Montana's $11,073.

Do required minimum distributions change if I move here? No. The required amount is a federal calculation and identical in every state. What changes is what the distribution costs once taken.

Does this article include local income tax? No local income tax applies to retirement income in Montana on the figures used here.

Will Montana's treatment still apply in ten years? State legislatures revise retirement taxation regularly — several states have changed theirs in the past three years. Figures here are for tax year 2026 and are worth re-checking before a move.

What to do next

Two numbers decide this and neither is the one in the headline: your county's actual property tax rate, and a real insurance quote on a real address.

• Retirement state tax calculator — what any state charges on your income, cited per state
• RMD calculator — the distribution you must take, which no state changes
• Home insurance premium estimator — the line this article says decides it
• The Relocation Tax Playbook — establishing domicile, and the states that contest it