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Vermont Retirement Taxes (2026): Two Laws Changed — and Most Guides Get Both Wrong

Clear Money Guide

What this state guide covers

A quick view of the questions, practical details and source notes below.

The Act 71 rules, verified against the enacted statute
How Vermont taxes retirement income (statute-cited)
Estate tax and probate: the flat 16% and a $45,000 small-estate lane
Is Vermont a good state to retire in for taxes?

Comparison tables scroll horizontally on smaller screens.

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: Vermont taxes retirement income harder than almost any neighbor — pensions, 401(k) and IRA withdrawals are fully taxable at graduated rates to 8.75% — but Act 71 (2025, retroactive to TY2025) reshaped the exemptions: Social Security is now fully exempt at AGI up to $55,000 (single/HOH/MFS/surviving spouse) / $70,000 (joint), phasing out completely at $65,000/$80,000; and military retirement went from a $10,000 cap to fully exempt at AGI up to $125,000. One rule almost no guide mentions: a taxpayer eligible for more than one of the Social Security, Civil Service Retirement System and other government-plan exclusions must elect only one, while the military retirement exclusion may be elected regardless. At death, Vermont’s estate tax runs a $5,000,000 exclusion with a flat 16% above it.

More on public pension systems, topic by topic: Vermont VSERS employment after retirement, Vermont VSERS disability retirement and Vermont VSERS early retirement.

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.

Looking ahead to 2027? The state’s estate tax exemption for deaths in 2027, from its own tax documents: Vermont estate tax exemption 2027.

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?.

For trust income specifically: does Vermont tax trust income.

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

For annuity payments specifically: 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?.

For military retired pay: 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.

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

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

Before the tax question, the Vermont VSERS and VSTRS survivorship options, withdrawal and buyback rules: Vermont VSERS and VSTRS retirement decisions.

The Act 71 rules, verified against the enacted statute

Three specifics from 32 V.S.A. §5830e as amended. First, the thresholds: Act 71 raised each AGI line by $5,000 — a one-time, permanent change; coverage claiming thresholds “rise each year until all Social Security is exempt by 2032” describes unenacted proposals, not the law. Second, the $10,000 exclusion’s real scope: it covers CSRS and other government contributory pensions based on earnings not covered by Social Security (federal, state, or local) — private pensions, 401(k)s and IRAs do not qualify — at the same AGI thresholds. Third, the election: a taxpayer eligible for both the SS exemption and the $10,000 exclusion may claim only one per year (§5830e(e)(1)). The military exemption is the exception — fully exempt at AGI ≤ $125,000 (phasing out to $175,000), any filing status, claimable on top of the others (§5830e(d), (e)(2)).

How Vermont taxes retirement income (statute-cited)

Income taxGraduated, 3.35% to 8.75%
Social SecurityFully exempt at AGI ≤ $55,000 / $70,000 MFJ; proportional phase-out to $65,000 / $80,000 (32 V.S.A. §5830e(a), Act 71)
Pension / 401(k) / IRAFully taxable; the $10,000 exclusion covers only government contributory plans outside Social Security (CSRS-class), same thresholds, pick-one election
Military retirementFully exempt at AGI ≤ $125,000 (phase-out to $175,000), TY2025+, stackable with the other exclusions
Estate taxYes — $5,000,000 exclusion (since 2021, not indexed); flat 16% above
Inheritance taxNone

Estate tax and probate: the flat 16% and a $45,000 small-estate lane

Vermont’s estate tax is unusual for its flatness: one rate, 16%, on the Vermont taxable estate above the $5M exclusion — no graduated ramp. Probate compensation is allowed by the Probate Division as reasonable (no percentage schedule); the small-estate procedure covers estates of entirely personal property up to $45,000 with no real estate. Full table: estate tax by state. Context: probate cost by state · small-estate limits by state.

Is Vermont a good state to retire in for taxes?

For modest incomes, better than reputation: a couple at or under $70,000 AGI keeps Social Security untaxed and pays graduated rates only on withdrawals. Above the phase-outs, Vermont is genuinely expensive — full taxation of withdrawals to 8.75% (an additional standard deduction of $1,250 applies for each standard deduction box checked on the federal Form 1040, including for filers born before Jan. 2, 1961), and the pick-one election means government retirees can’t stack breaks. Military retirees fare dramatically better post-Act 71. Next door, New Hampshire taxes nothing at all — the sharpest single-border tax contrast in New England now that its interest-and-dividends tax is dead.

Does Vermont tax Social Security? All 51 jurisdictions, 202643 do not tax Social Security at any income level. 8 tax it only above an income or age limit. Vermont is in the second group.Does Vermont tax Social Security? All 51jurisdictions, 202643 do not tax Social Security at any incomelevel. 8 tax it only above an income or agelimit.Vermont is in the second group.Not taxed at any income (43)Taxed only above a limit (8)ALAKAZARCACOCTDEDCFLGAHIIDILINIAKSKYLAMEMDMAMIMNMSMOMTNENVNHNJNMNYNCNDOHOKORPARISCSDTNTXUTVTVAWAWVWIWYPostal abbreviations, alphabetical. TheDistrict of Columbia is counted as ajurisdiction, which is why the total is 51 andnot 50.Being in the second group does not mean thebenefits are taxed – it means the exemptionstops at an income or age line. This guide’sown table gives the exact figures.Counted from Clear Money Guide’s 2026 51-jurisdictionretirement-tax table, where every row carries its statutecitation. Table read 2026-08-17.
Vermont is one of 8 jurisdictions that exempt Social Security only up to an income or age limit; the other 43 do not tax benefits at any income level in 2026. Vermont’s exact limits are in the table on this page; all 51 rules: the 51-state table.

Vermont vs. common alternatives

StateSocial SecurityPension / 401(k) / IRAEstate taxInheritance tax
VermontFully exempt at $55k/$70k AGI or less (phase-out to $65k/$80k)Fully taxable (to 8.75%); narrow $10,000 gov-plan exclusionYes — $5M exclusion, flat 16%None
New HampshireNot taxedNot taxed (no income tax)NoneNone
MaineNot taxed$48,216 deduction less SS received (AGI-tested)Yes — $7.16M, 8–12%None
MassachusettsNot taxedPrivate pensions/401(k)/IRA taxed at 5%; gov pensions exemptYes — $2M via creditNone

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 Vermont may treat it differently from the retirement income above — see how all 51 jurisdictions tax Roth conversions.

Finding a financial advisor in Vermont

Per the SEC’s July 2026 Investment Adviser roster, Vermont has 31 SEC-registered advisory firms (#44 nationally) managing $76.6 billion (#38 by AUM). Full breakdown: Vermont 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 Vermont:

Leaving Vermont? See leaving Vermont in retirement.

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

What probate costs in Vermont

Vermont 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 $45,000 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: Vermont probate cost. To price a specific estate, use the probate cost calculator.

Cite or share this guide

Suggested citation: Clear Money Guide, “Vermont Retirement Taxes (2026 edition),” statute-cited; clearmoneyguide.com/vermont-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 32 V.S.A. §5830e (as amended by Act 71 of 2025), 32 V.S.A. §5822, 32 V.S.A. §7442a, 14 V.S.A. §1901 and the Vermont Department of Taxes estate tax page on September 30, 2026; the neighbor-state comparison rows (New Hampshire, Maine, Massachusetts), the probate-compensation standard and the SEC adviser roster figures were not re-checked.

Primary sources