Delaware Retirement Taxes (2026): The $12,500 Exclusion That Also Covers Dividends and Capital Gains

2026 edition · statute-cited · part of Clear Money Guide’s 51-state retirement tax series. This guide covers state taxes on retirement income and estate transfers; property and sales taxes vary by county and are outside its scope.

Updated July 24, 2026. Quick answer: Delaware exempts Social Security, repealed its estate tax back in 2018, and gives taxpayers 60 and older an exclusion of up to $12,500 per person — modest on its face, but broader than almost any other state’s: it covers not just pension and 401(k)/IRA income but dividends, interest, capital gains and rental income counted toward retirement. Above it, graduated rates run from 2.2% to 6.6%. One correction before you plan around headlines: HB 108, the bill to double the exclusion to $25,000, has not been enacted — the 2026 amount remains $12,500.

More on public pension systems, topic by topic: Delaware SEPP disability pension and Delaware SEPP early retirement.

State retirement-income forms, line by line: Delaware PIT-RES pension exclusion.

Inherited an IRA? What the state’s own documents say about taxing those withdrawals: Delaware tax on inherited IRA withdrawals.

Hold a 403(b) or 457(b)? What the state’s own documents say about taxing those withdrawals: does Delaware tax 403(b) and 457(b) withdrawals.

Married, or planning for a spouse’s death? Whether the state is a community property state, from its own statutes: Is Delaware a community property state?.

Selling your home? How the state taxes the profit, from its own tax documents: Does Delaware tax the profit from selling your home?.

The state’s income tax schedule: the Delaware 2026 tax brackets (pending).

For trust income specifically: does Delaware tax trust income.

For dividends and interest specifically: does Delaware tax dividends and interest.

Inheriting from, or planning for, someone in this state? Whether the state has an inheritance tax, from its own tax documents: Does Delaware have an inheritance tax?.

For annuity payments specifically: does Delaware tax annuity income.

Making a gift or planning an estate? The state’s gift tax answer, from its own tax documents: Does Delaware have a gift tax?.

Planning for what you leave behind? The state’s estate tax answer, from its own tax documents: Does Delaware have an estate tax?.

For military retired pay: does Delaware tax military retirement.

Saving for a child’s college? The state’s 529 break has its own page: Delaware 529 plan tax deduction.

For the sale of stocks, funds or real estate: does Delaware tax capital gains.

For 401(k) and IRA withdrawals specifically: does Delaware tax 401(k) and IRA withdrawals.

Before the tax question, the Delaware State Employees’ Pension Plan options, refund and buy-in rules: Delaware state pension retirement decisions.

What counts as “eligible retirement income” (the part guides miss)

Most states’ exclusions stop at pensions and plan distributions. Delaware’s “eligible retirement income” for the 60+ exclusion reaches dividends, interest, capital gains, and net rental income in addition to pensions and 401(k)/IRA/Keogh/457 distributions — which makes it unusually valuable for retirees living off a taxable brokerage portfolio rather than a pension. Under 60, the pension exclusion is $2,000. Military pensions get the $12,500 exclusion regardless of age (the under-60 military amount was raised to $12,500 in 2022). And note what Delaware doesn’t tax: there is no state or local sales tax, no estate tax (repealed for deaths on/after January 1, 2018), and no inheritance tax.

How Delaware taxes retirement income (statute-cited)

Income tax	Graduated, six brackets 2.2% to 6.6%
Social Security	Not taxed (excluded)
Pension / 401(k) / IRA	60+: exclude up to $12,500/person of pension plus eligible retirement income — including dividends, interest, capital gains and rental income. Under 60: $2,000 pension exclusion. HB 108 ($25,000) not enacted
Military retirement	Up to $12,500 exclusion regardless of age
Estate / inheritance tax	None — estate tax repealed effective Jan. 1, 2018

Probate: reasonable fees and a $50,000 affidavit

Delaware has no statutory percentage schedule: personal-representative commissions and attorney fees are allowed as provided by rule of the Court of Chancery (12 Del. C. §2305). Small estates: up to $50,000 of personal property can pass by affidavit without a grant of letters (12 Del. C. §2306): personal property only, no Delaware real estate owned solely or as tenants in common, 30-day wait, with the affidavit furnished to any person owing money to the decedent or holding the decedent’s property. Context: probate cost by state · small-estate limits by state · will vs. trust calculator.

Is Delaware a good state to retire in for taxes?

Delaware is the quiet middle path: no sales tax, no death taxes, Social Security untaxed, and an exclusion that uniquely shelters portfolio income — but only $12,500 of it, with graduated rates to 6.6% beyond. A retiree with large annual 401(k) withdrawals will pay real income tax here; one living on Social Security plus modest portfolio draws may pay almost nothing while enjoying Mid-Atlantic proximity without Maryland’s inheritance tax or New Jersey’s heir-class tax. Run the exclusion against your actual income mix — it’s the whole ballgame.

Delaware vs. common alternatives

State	Social Security	Pension / 401(k) / IRA	Estate tax	Inheritance tax
Delaware	Not taxed	Exclude up to $12,500/person at 60+	None (repealed 2018)	None
Pennsylvania	Not taxed	Not taxed (retirement-age distributions)	None	Yes — 0/4.5/12/15% by heir class
Maryland	Not taxed	Pension exclusion up to $41,200 at 65+ (not IRAs)	Yes — $5M exemption	Yes — 10% collateral heirs
Florida	Not taxed	Not taxed (no income tax)	None	None

Comparison rows summarize general rules; see our 51-state retirement tax table for statute-cited detail.

Considering a Roth conversion? The converted amount is taxed as ordinary income in the year you convert, and Delaware may treat it differently from the retirement income above — see how all 51 jurisdictions tax Roth conversions.

Finding a financial advisor in Delaware

Per the SEC’s July 2026 Investment Adviser roster, Delaware has 38 SEC-registered advisory firms (#41 nationally) managing $324.4 billion (#28 by AUM). Full breakdown: Delaware advisor statistics. Reviewing fee structures: fee-drag calculator.

Thinking about moving?

Four taxes change when you move state in retirement, not one: income tax on withdrawals, state estate tax, state inheritance tax, and what probate costs your heirs. Corridor comparisons involving Delaware:

• Maryland to Delaware retirement taxes
• Massachusetts to Delaware retirement taxes
• New Jersey to Delaware retirement taxes
• New York to Delaware retirement taxes
• Pennsylvania to Delaware retirement taxes

Moving to Delaware? See retiring to Delaware.

Compare any two states with the retirement tax comparison tool, or browse all corridors at the relocation hub.

What probate costs in Delaware

Delaware sets probate compensation by a “reasonable fee” standard with no percentage schedule, so anyone quoting a firm figure is estimating. And the small-estate shortcut of $50,000 does not clear a solely owned house on its own, which is the detail most guidance omits. Full detail with the governing statute, the court filing fee and the threshold: Delaware probate cost. To price a specific estate, use the probate cost calculator.

Cite or share this guide

Suggested citation: Clear Money Guide, “Delaware Retirement Taxes (2026 edition),” statute-cited; clearmoneyguide.com/delaware-retirement-taxes/. Free to cite with attribution and a link. Data verified July 23–24, 2026 against state statutes, session laws, and revenue-department guidance.

Figures verified against 30 Del. C. §1102 and §1106(b)(3), 30 Del. C. chapters 13 and 15, 12 Del. C. §2305 and §2306 (Delaware Code Online), and the Delaware General Assembly bill page for HB 108 on September 30, 2026; the no-sales-tax statement, the Maryland and Pennsylvania comparison rows and the adviser statistics were not re-checked.

Primary sources

• https://revenue.delaware.gov/frequently-asked-questions/personal-income-tax-faqs/
• https://legis.delaware.gov/BillDetail?LegislationId=142071
• https://taxfoundation.org/data/all/state/state-income-tax-rates-2026/
• https://taxfoundation.org/data/all/state/estate-inheritance-taxes/
• https://law.justia.com/codes/delaware/title-12/chapter-23/subchapter-i/section-2306/
• https://delcode.delaware.gov/title12/c023/sc01/index.html