Updated September 5, 2026. Quick answer: Vermont fully taxes private pensions and IRA or 401(k) distributions as ordinary income with no general retirement exclusion, but as of tax year 2025 it exempts military retirement pay for filers with AGI up to $125,000, phasing out completely by $175,000, and it separately gives a smaller $10,000 exclusion to some federal and state government pension recipients at lower incomes. A taxpayer eligible for more than one of the Social Security, Civil Service Retirement System, or other government pension exclusions must elect only one of them in a given year, but the military exemption may be elected regardless (32 V.S.A. sec. 5830e(e)).
Federal civil service pensions in Vermont: does Vermont tax federal pensions.
State retirement-income forms, line by line: Vermont Schedule IN-112.
Inherited an IRA? What the state’s own documents say about taxing those withdrawals: Vermont tax on inherited IRA withdrawals.
Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does Vermont tax 403(b) and 457(b) withdrawals.
Drawing a pension? Whether the state withholds tax from it, from its own documents: Vermont tax withholding on pension payments.
Married, or planning for a spouse’s death? Whether the state is a community property state, from its own statutes: Is Vermont a community property state?.
Selling your home? How the state taxes the profit, from its own tax documents: Does Vermont tax the profit from selling your home?.
The state’s income tax schedule: the Vermont tax brackets for 2026.
Withdrawing from an IRA or 401(k)? Whether the state withholds tax from it, from its own documents: Vermont tax withholding on IRA and 401(k) withdrawals.
Inheriting from, or planning for, someone in this state? Whether the state has an inheritance tax, from its own tax documents: Does Vermont have an inheritance tax?.
Trusts have their own page: does Vermont tax trust income.
Dividends and interest have their own page: does Vermont tax dividends and interest.
Annuity payments have their own page: does Vermont tax annuity income.
Making a gift or planning an estate? The state’s gift tax answer, from its own tax documents: Does Vermont have a gift tax?.
Military retired pay has its own page: does Vermont tax military retirement.
Saving for a child’s college? The state’s 529 break has its own page: Vermont 529 plan tax deduction.
Selling stocks, funds or real estate has its own page: does Vermont tax capital gains.
Withdrawals from a 401(k) or IRA have their own page: does Vermont tax 401(k) and IRA withdrawals.
The Vermont VSERS and VSTRS survivorship and withdrawal rules, from the Treasurer’s plan descriptions: Vermont VSERS and VSTRS retirement decisions.
Confidence note: medium. This page is scoped to pension, IRA and 401(k) taxation specifically. For the state’s full retirement-tax picture (Social Security, tax rates, estate and probate), see how Vermont taxes retirement income generally.
How pensions and retirement-account withdrawals are taxed
| Public (state/local government) pensions | Vermont taxes most state and local government pension income as ordinary income. A filer can exclude the first $10,000 of income from a contributory annuity, pension, or retirement system of a U.S. or state government if joint filers have AGI at or below $70,000 or other filers have AGI at or below $55,000 (full exclusion), phasing out to zero at $80,000 (joint) or $65,000 (other filers) for tax year 2025 (32 V.S.A. sec. 5830e(b) and (c)). A filer eligible for this exclusion and the Social Security or Civil Service Retirement System exclusion elects only one of them, while the military exemption may be elected regardless. |
|---|---|
| Private (employer) pensions | Private employer pension income is fully taxable as ordinary income under Vermont’s federal-AGI-based tax system. Vermont’s published guidance did not show a private-pension-specific exclusion. |
| Federal government pensions (FERS/CSRS) | Civil Service Retirement System income has its own $10,000 exclusion, available in full to joint filers with AGI at or below $70,000 or other filers at or below $55,000 and phasing out to zero at $80,000 or $65,000 (tax year 2025, 32 V.S.A. sec. 5830e(b)). Other federal pensions may fall under the more general $10,000 government retirement system exclusion described above, though 32 V.S.A. sec. 5830e(c)(2) allows that exclusion only where the retirement system was based on earnings that were not covered by the Social Security Act, so whether a FERS pension qualifies depends on that condition. |
| Military retirement pay | As of tax year 2025, under Act 71 signed into law June 25, 2025, Vermont fully exempts military retirement and survivor benefit income under Title 10 of the U.S. Code for taxpayers with federal AGI at or below $125,000. The exempt amount decreases as AGI rises between $125,000 and $175,000, and no exemption applies at $175,000 or above. Under 32 V.S.A. sec. 5830e(e)(2), a taxpayer may elect this exemption regardless of whether the taxpayer also elects the Social Security, Civil Service Retirement System, or other government pension exclusion. |
| IRA and 401(k)/403(b) distributions | IRA and 401(k) or 403(b) distributions are fully taxable as ordinary income; Vermont’s published guidance did not show any IRA or 401(k)-specific exclusion. |
| General retirement-income exclusion | Vermont has no general age-based retirement income exclusion that applies regardless of income type. Its exemptions are category-specific (Social Security, military retirement, Civil Service Retirement System, or other government pension), income-gated, and, apart from the military exemption, mutually exclusive, meaning a taxpayer eligible for more than one of the Social Security, Civil Service Retirement System, or other government pension exclusions elects only one of them for a given tax year. |
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How our partner relationships workSocial Security
Vermont exempts Social Security benefits for filers below AGI thresholds of $55,000 (single/other) or $70,000 (joint) for tax year 2025, phasing out to zero exemption at $65,000 (single/other) or $80,000 (joint) under 32 V.S.A. sec. 5830e(a), but this exemption cannot be combined with the Civil Service Retirement System or other government pension exclusions (the military exemption may be elected regardless). Social Security has its own rules in every state; see the full breakdown in how Vermont taxes retirement income generally.
Figures verified against 32 V.S.A. sec. 5830e and sec. 5811 (legislature.vermont.gov), Act 71 of 2025 as enacted, and the Vermont Department of Taxes military and seniors pages on September 30, 2026. The Department seniors page still lists the pre-2025 thresholds and a one-exemption note, so the enacted statute text was followed.
Statute and sources
Governing citation: 32 V.S.A. sec. 5811 (Vermont taxable income); sec. 5830e (retirement income and Social Security exclusions); Act 71 of 2025 (military retirement exemption).
Read September 5, 2026.
Related: how Vermont taxes retirement income generally · does Vermont tax Roth conversions? · Roth conversion taxes, all 51 jurisdictions.
General information drawn from each state’s own published statutes and revenue-department guidance, not legal, tax or financial advice. Figures and exemption amounts are current as of the date in the quick answer, are set by state law, and can change by future legislation; any pending bill named on this page is not yet law. This page cannot see your own return, which governs. We are not a law firm, a tax adviser, or a fiduciary, and this is not personalized advice.