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

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: taxpayers eligible for more than one exclusion must pick one. At death, Vermont’s estate tax runs a $5,000,000 exclusion with a flat 16% above it.

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 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% with no age-based shelter, 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.

Vermont vs. common alternatives

StateSocial SecurityPension / 401(k) / IRAEstate taxInheritance tax
VermontExempt below $55k/$70k AGI (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.

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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.

Primary sources