Retiring in Vermont: What the State Actually Takes

On the ordinary retirement profile — $34,000 of Social Security and $61,000 of plan distributions — Vermont takes $4,664 a year in state income tax.

That is the number people compare, and it is the smallest of three. Property tax adds about $6,228 on the state's $423,700 median home, and insurance another $1,170. The three together come to $12,062, placing Vermont 48th of 50.

A note before you start. This is general education, not tax advice. Every Vermont 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 Vermont takes from retirement income

On Social Security. Vermont is one of the small group of states still taxing Social Security. The exclusion is full below the threshold and phases out linearly over the next $10,000 of federal AGI, reaching zero at $65,000 (single, married filing separately, head of household, surviving spouse) and $80,000 (married filing jointly). The statutory formula is proportional rather than a cliff: the excluded percentage equals ($65,000 minus FAGI) divided by $10,000, times the federally taxable benefits, with $80,000 and the same $10,000 span for joint filers. Note the filing-status shape, which breaks two common assumptions: married filing separately gets the same $55,000 threshold as single rather than half of the joint figure, and head of household also gets $55,000 rather than an intermediate amount — Vermont's statute groups single, married filing separately, head of household, and surviving spouse together, and joint filers get $70,000, which is well short of double. These figures are current and the Department's own consumer page is not: see the sources entry for a documented disagreement between the statute and tax.vermont.gov.

On 401(k) and IRA distributions. Distributions from a 401(k), 403(b), or traditional IRA are fully taxable in Vermont. Vermont's retirement exclusions under 32 V.S.A. 5830e are narrow and none of them reaches an ordinary private-sector qualified plan: the exclusions cover Social Security, Civil Service Retirement System income, other contributory public retirement systems whose earnings were not covered by Social Security, and U.S. military retirement. A 401(k) or IRA distribution is outside all four.

2. The rule that decides your Vermont bill

Three different answers, and the differences are large. (1) private pensions: fully taxable, no exclusion. (2) public pensions: the first $10,000 of Civil Service Retirement System income is excludable, and the same $10,000 treatment extends to other contributory annuity, pension, endowment, or retirement systems of the federal government, Vermont, or another state or political subdivision — but only if the system was based on earnings not covered by the Social Security Act. That condition excludes most modern state and local pensions, whose members do pay into Social Security, so this is a much narrower door than 'public pensions get $10,000' suggests. The $10,000 exclusion itself phases out on the same schedule as the Social Security exclusion: full at FAGI up to $55,000 (or $70,000 joint), zero at $65,000 (or $80,000 joint). (3) military retirement: far more generous and on a completely different scale. U.S.

The Social Security and military retirement figures recorded here reflect 2025 Acts and Resolves No. 71, sec. 3, effective January 1, 2025, which raised the Social Security thresholds and replaced the former flat $10,000 military retirement exclusion with a full exclusion below $125,000 of federal AGI. Any source describing Vermont as excluding only the first $10,000 of military retirement pay, or as using $50,000/$65,000 Social Security thresholds, is pre-2025.

Vermont's exclusions are keyed to federal adjusted gross income, not to Vermont taxable income, so they are evaluated before the standard deduction and personal exemptions and cannot be managed downward by Vermont-specific deductions.

3. What Vermont 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 6.6%. That is what an extra dollar of distribution costs — a larger number than the 4.9% 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 $4,579.

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

An effective rate of 1.5% on the state's $423,700 median home is about $6,228 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.

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

Vermont has no ad-valorem homestead exemption in the FL/TX sense. Instead, all Vermont property is taxed for the statewide education property tax as either 'homestead' or 'nonhomestead,' at different rates — a homestead (a Vermont resident's owned and occupied principal dwelling and surrounding parcel) generally gets the lower homestead education tax rate versus the nonhomestead rate applied to second homes, rentals, and commercial property. This is not automatic: Vermont law requires the owner to file a Homestead Declaration (Form HS-122) annually by the April filing deadline to be correctly assessed at the homestead rate. Separately, the Vermont Property Tax Credit (filed on the same HS-122 form) provides income-based relief on both the state education and municipal portions of property tax for homeowners who file a Homestead Declaration, are domiciled in VT year-round, and meet a household income limit ($115,400 for tax year 2025) — maximum credit $5,600 (education portion) + $2,400 (municipal portion).

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 Vermont: $1,170 a year — 2nd 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 Vermont actually costs

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

Vermont comes to $12,062, 48th of 50.

Income tax is 39% 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. Whose pension it is changes the bill

Vermont does not tax all pensions the same way. The same $50,000 costs $1,694 if it is a private employer pension and $1,340 if it is a government one. Three different answers, and the differences are large. (1) private pensions: fully taxable, no exclusion. (2) public pensions: the first $10,000 of Civil Service Retirement System income is excludable, and the same $10,000 treatment extends to other contributory annuity, pension, endowment, or retirement systems of the federal government, Vermont, or another state or political subdivision — but only if the system was based on earnings not covered by the Social Security Act. That condition excludes most modern state and local pensions, whose members do pay into Social Security, so this is a much narrower door than 'public pensions get $10,000' suggests. The $10,000 exclusion itself phases out on the same schedule as the Social Security exclusion: full at FAGI up to $55,000 (or $70,000 joint), zero at $65,000 (or $80,000 joint). (3) military retirement: far more generous and on a completely different scale. U.S. This is the distinction most published comparisons flatten. A state described as exempting pension income may exempt only the government kind — and a private-sector career is the case most states treat least generously.

8. What a Roth conversion costs in Vermont

Converting $50,000 to a Roth costs an extra $3,553 in Vermont tax — 7.1 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 7.1%. The federal tax is due either way.

9. What part-time work costs here

$20,000 of part-time work costs an extra $1,320 in Vermont tax — an effective 6.6% on the earnings.

Compare that with the 7.1% a Roth conversion costs. Earned income is the cheaper dollar here, which is unusual.

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.

Vermont 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 6.6%, 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 Vermont 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.

New York is the cheapest of the group at $10,287, $1,775 below Vermont. 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 Vermont from somewhere else

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

Vermont is cheaper than 0 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.

Vermont charges a transfer tax on the purchase itself — 1%, customarily paid by the buyer. On the state's $423,700 median home that is about $4,279, once, at the point of sale. Closing costs here run about 3% to 5% of the price — $12,711 to $21,185 on the median home, which is the real entry fee for the annual saving this article has been describing.

13. Where these Vermont figures are approximate

Every income tax figure above comes from this site's own Vermont 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.

• A calculator that applies only the bracket schedule will understate the liability of a high-AGI filer with large deductions or exclusions.
• Because 2026 thresholds are indexed upward, a 2026 calculation using the figure here will slightly overstate Vermont tax.

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 Vermont 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 Vermont 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 Vermont 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 Vermont actually suits

Someone with a government pension, which this state treats better than a private one of the same size.

It suits an affluent retiree least. At the affluent profile the bill is $10,878, and whatever exclusion helps a modest income has stopped helping by then.

And it suits someone buying below the median, because $6,228 of property tax on the median home is the largest single line in this article.

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. $1,170 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 Vermont 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 Vermont tax Social Security? No. Vermont is one of the small group of states still taxing Social Security. The exclusion is full below the threshold and phases out linearly over the next $10,000 of federal AGI, reaching zero at $65,000 (single, married filing separately, head of household, surviving spouse) and $80,000 (married filing jointly). The statutory formula is proportional rather than a cliff: the excluded percentage equals ($65,000 minus FAGI) divided by $10,000, times the federally taxable benefits, with $80,000 and the same $10,000 span for joint filers. Note the filing-status shape, which breaks two common assumptions: married filing separately gets the same $55,000 threshold as single rather than half of the joint figure, and head of household also gets $55,000 rather than an intermediate amount — Vermont's statute groups single, married filing separately, head of household, and surviving spouse together,

Does Vermont tax 401(k) or IRA withdrawals? Distributions from a 401(k), 403(b), or traditional IRA are fully taxable in Vermont. Vermont's retirement exclusions under 32 V.S.A. 5830e are narrow and none of them reaches an ordinary private-sector qualified plan: the exclusions cover Social Security, Civil Service Retirement System income, other contributory public retirement systems whose earnings were not covered by Social Security, and U.S. military retirement.

What about pensions — private, government, or military? A $50,000 pension costs $1,694 if private, $1,340 if a government pension, and $1,340 if military retired pay. Those differences are the state's own policy, not an accident of the arithmetic.

What does retiring in Vermont actually cost? Income tax of $4,664 on the typical profile, plus about $6,228 of property tax and $1,170 of insurance on the median home — $12,062, which is 48th of 50.

Is Vermont a cheap state to retire in? On these three lines it ranks 48th 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 Vermont? An extra $3,553 in state tax on $50,000 converted, and $7,353 on $100,000. That is 7.1% 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 $1,320 in state tax, an effective 6.6%.

Would a neighbouring state be cheaper than Vermont? New York is the cheapest of Vermont and its neighbours at $10,287 against Vermont's $12,062.

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 Vermont on the figures used here.

Will Vermont'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