One of the first questions I hear at the kitchen table is some version of "How much do we actually need each month?" It's the right question. But if you live in Western Pennsylvania, there's a second question that changes the answer more than most people expect: "How much of that income will we actually keep?"
Pennsylvania treats retirement income differently than almost any other state. Understanding those rules won't tell you your number by itself, but it will keep you from planning around a tax bill you may never owe, and from missing the few places where the Commonwealth does still take its share.
Here's how it works, in plain English.
The short version: Pennsylvania doesn't tax most retirement income
Pennsylvania has a flat personal income tax of 3.07%. For working households, that applies to wages, interest, dividends, capital gains, business income and the like.
Once you retire, a large share of your income simply falls outside that tax. According to the Pennsylvania Department of Revenue:
Social Security benefits are not taxed by Pennsylvania.
Pension payments from an eligible employer plan are not taxed when you've retired after meeting the plan's age or years-of-service requirements.
401(k), 403(b) and similar employer-plan distributions follow the same rule: not taxable once you've retired under the plan's terms.
IRA distributions are not taxable after age 59½, even if you're still working. A full rollover from one retirement account to another, including to a Roth IRA, is also not taxable for PA purposes.
For a couple whose retirement is funded mainly by Social Security, a pension and withdrawals from retirement accounts, Pennsylvania's income tax on that money can be close to zero. That is a meaningful advantage over many neighboring states, and it's one reason retirees who've spent a career at a Pittsburgh hospital system, university, utility or manufacturer often find staying put makes financial sense.
The catches worth knowing
The rules above come with conditions, and this is where plans get tripped up.
Early distributions are taxable. If you take money from a 401(k) or IRA before you've met the plan's retirement conditions (or before 59½ for an IRA), Pennsylvania generally taxes the portion that exceeds the contributions you already paid tax on. The Department of Revenue is explicit that PA has no equivalent to the federal early-withdrawal exceptions. The practical lesson: when you take a distribution matters for your state return, not just your federal one.
Investment income is still taxed. Interest, dividends and capital gains in a regular brokerage account are taxed at 3.07%, retirement or not. This is why the order you draw from your accounts, and which account holds which investments, can affect your after-tax income in Pennsylvania specifically.
Earned income is still earned income. If you work part-time or do consulting in retirement, those wages are subject to PA income tax and to your municipality's local earned income tax. The good news: local earned income tax applies to earned income. Pensions, Social Security and retirement-account withdrawals are not subject to it.
Federal tax hasn't gone anywhere. Pennsylvania's treatment doesn't change your federal return. Up to 85% of Social Security can be federally taxable depending on your other income, and pre-tax 401(k) and IRA withdrawals are federally taxable as ordinary income. Current federal law also includes an additional deduction for taxpayers 65 and older for tax years 2025 through 2028, which phases out at higher incomes. Your tax professional can tell you whether it applies to you.
Medicare premiums are income-sensitive. The standard Medicare Part B premium is $202.90 per month in 2026, and higher-income households pay more through an income-related surcharge based on your tax return from two years prior. Large withdrawals or Roth conversions in one year can raise your premiums two years later. It's a planning detail, not a reason to avoid those moves, but it belongs in the conversation.
So how much monthly income do you need?
National benchmarks give you a frame of reference, not an answer:
The average Social Security retired-worker benefit is about $2,071 per month in 2026; for a couple both receiving benefits, about $3,208, according to the Social Security Administration.
Median income for households headed by someone 65 or older was $56,680 in 2024, roughly $4,700 per month, based on Census Bureau data.
Those figures describe the country. They don't describe you. Your number comes from your own spending, your own guaranteed income and the gap between them. I walked through that framework step by step in The Basics of Planning for Monthly Retirement Income; the Pennsylvania layer simply changes the math in your favor.
A hypothetical illustration. Consider a couple in Cranberry Township who estimate they'll spend $6,500 a month in retirement. Between their combined Social Security ($3,900) and a modest pension ($1,200), they have $5,100 a month in dependable income. Their gap is $1,400 a month, or $16,800 a year, which they plan to draw from a 401(k) and IRAs after retiring at 65.
In Pennsylvania, none of that $6,500 is subject to state income tax: not the Social Security, not the pension, not the retirement-account withdrawals. Federal tax still applies to the pension and the withdrawals, and possibly to part of their Social Security. But a household in a state that taxes retirement income could owe several thousand dollars a year more on the same income. That difference is real money over a 25-year retirement.
This example is hypothetical and for illustration only. It does not represent any actual client, and your situation will differ.
The question people forget to ask
Pennsylvania is generous on retirement income. It is less generous on retirement accounts when they pass to the next generation.
Pennsylvania's inheritance tax applies to most assets a resident leaves behind, including IRAs and 401(k)s in many cases. Transfers to a surviving spouse are taxed at 0%, but transfers to children and other lineal heirs are taxed at 4.5%, to siblings at 12%, and to most other heirs at 15%. (A 5% discount applies if the tax is paid within three months of death.)
That means how your retirement accounts are titled, who is named as beneficiary, and whether a trust fits your situation are not just estate questions; they're retirement income questions too. I covered the basics in What Assets Should You Put in a Trust?, and I'll go deeper on Pennsylvania inheritance tax and retirement accounts in a future article.
Where a plan comes in
Most of the value in retirement income planning isn't in knowing these rules. It's in sequencing: which account you draw from first, how much, in which year, and how that interacts with Social Security timing, Medicare premiums, federal brackets and what you'd like to leave behind. Pennsylvania's rules make some of those decisions easier and a few of them more important.
If you're within five to ten years of retirement and want a clear picture of your own monthly number, that's exactly the conversation our process is built around. You can reach out here to schedule a call. There's no obligation, and the first meeting is simply about understanding where you are.
Frequently asked questions
Does Pennsylvania tax Social Security benefits?
No. Pennsylvania does not tax Social Security retirement benefits. They may still be partially taxable on your federal return depending on your other income.
Does Pennsylvania tax 401(k) and IRA withdrawals?
Not once you've retired under your plan's terms, or after age 59½ for IRAs. Distributions taken before those conditions are met are generally taxable to the extent they exceed previously taxed contributions.
Is a pension taxable in Pennsylvania?
Pension payments from an eligible employer plan are not subject to PA income tax when you've retired after meeting the plan's age or service requirements.
What is the average monthly retirement income?
The average Social Security retired-worker benefit is about $2,071 per month in 2026, and the median income for households headed by someone 65 or older was $56,680 in 2024. Your own number depends on your expenses, guaranteed income and savings.
Does Pennsylvania have an inheritance tax on retirement accounts?
Generally yes. IRAs and 401(k)s left to children and other lineal heirs are typically taxed at 4.5%; transfers to a surviving spouse are taxed at 0%. Rules vary by circumstance, so review beneficiary designations with your advisor and an estate attorney.
Sources: Pennsylvania Department of Revenue, Retirement income / 1099-R guidance and Inheritance Tax; Social Security Administration, 2026 Cost-of-Living Adjustment Fact Sheet; Centers for Medicare & Medicaid Services, 2026 Medicare Parts A & B Premiums and Deductibles; U.S. Census Bureau, Current Population Survey, March 2025 (HINC-01). Tax rules and program figures change; figures are current as of publication.
Thank you,
Rob Holdcroft
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Three Cord True Wealth Management, LLC DBA Holdcroft Wealth Management, a registered investment advisor and separate entity from LPL Financial.
This material is for general information and educational purposes only and is not intended to provide specific investment, tax or legal advice. Tax laws and regulations are complex and subject to change. Please consult a qualified tax professional or attorney regarding your individual situation. Investing involves risk, including the possible loss of principal. No strategy assures success or protects against loss. The hypothetical example is for illustrative purposes only and is not representative of any specific situation; your results will vary.
