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. Vermont allows a taxpayer to use only one of its retirement-related exemptions (Social Security, military, or government pension) in a given year, not several at once.
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 $75,000 or other filers have AGI at or below $60,000, but only one of Vermont’s retirement exemptions (this one, Social Security, or military) can be used per year. |
|---|---|
| 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 for joint filers with AGI at or below $75,000 or other filers at or below $60,000. Other federal pensions may fall under the more general $10,000 government retirement system exclusion described above, though Vermont’s own guidance notes that exclusion excludes amounts tied to Social Security-covered earnings, which creates some ambiguity for FERS recipients not fully resolved from the primary sources fetched this session. |
| 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. A taxpayer cannot claim this exemption in the same year as the Social Security exemption. |
| 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 mutually exclusive, meaning a taxpayer can claim only one of them for a given tax year even if more than one would otherwise apply. |
Coordinate this with your overall retirement plan
An adviser can help weigh how much of a pension or IRA withdrawal to take this year, whether a Roth conversion makes sense before or after a move, and how state tax interacts with the rest of your plan, but that does not replace the numbers in your own return.
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Social Security
Vermont exempts Social Security benefits for filers below AGI thresholds of about $50,000 (single/other) or $65,000 (joint), phasing out to zero exemption at $60,000/$75,000, but this exemption cannot be combined with the military, Civil Service Retirement System, or other government pension exemptions. Social Security has its own rules in every state; see the full breakdown in how Vermont taxes retirement income generally.
Statute and sources
Governing citation: 32 V.S.A. sec. 5811 (Vermont taxable income); 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.