Colorado does not tax most pension income, but the rules depend on what kind of pension you receive and when you started collecting it

Colorado has one of the most generous pension tax treatments in the country. If you receive a pension from your employer — whether that's a government job, a private company, or the military — Colorado does not tax that income at the state level. The same applies to distributions from most retirement accounts, including IRAs and 401(k)s, as long as you meet certain age requirements.

The main exception is Social Security. Colorado does not tax Social Security benefits either, which is rare among states. However, if you have other income alongside your pension or Social Security, that other income is still subject to Colorado's state income tax.

Key Takeaways

  • Colorado excludes all pension income from state income tax, regardless of the amount or source.
  • Distributions from IRAs and 401(k)s are also tax-free in Colorado if you are age 55 or older (or 59½ for IRAs), with some exceptions for early withdrawals.
  • Social Security benefits are not taxed by Colorado, making the state favorable for retirees on multiple income streams.
  • If you have wages, self-employment income, or investment income alongside your pension, that income is still taxed at Colorado's standard rates.
  • Federal income tax still applies to all retirement income, even though Colorado does not tax it at the state level.

What counts as pension income in Colorado

Colorado's pension exemption covers income from a may have access to pension or annuity — money paid to you regularly by an employer-sponsored plan after you retire. This includes pensions from private employers, government agencies, the military, and the railroad retirement system. It does not matter how much you receive or how long you have been retired.

The exemption also covers distributions from retirement accounts if you meet the age requirement. For IRAs, you must be age 59½ or older. For 401(k)s, 403(b)s, and similar employer plans, you must be age 55 or older (or 50 if you worked for a public safety employer). Distributions taken before these ages are still taxable in Colorado, with limited exceptions for disability or medical hardship.

Lump-sum payments from a pension plan — money paid all at once instead of monthly — also may have access to for the exemption, as long as the payment comes from a may have access to plan.

How the federal tax picture differs from Colorado's

While Colorado does not tax your pension or retirement account distributions, the federal government does. You will owe federal income tax on most retirement income, and you may need to make quarterly estimated tax payments or have taxes withheld from your pension check.

The federal tax you owe depends on your total income for the year, your filing status, and your age. If you are 65 or older, you get a higher standard deduction, which can reduce or eliminate federal tax on moderate retirement income. Many retirees find they owe little or no federal tax once they account for this larger deduction.

Some types of retirement income have special federal rules. For example, a portion of your Social Security benefits may be taxable federally if your total income exceeds certain thresholds, even though Colorado does not tax Social Security at all.

When you move to Colorado with an out-of-state pension

If you already receive a pension from another state and then move to Colorado, you do not have to worry about Colorado taxing that income retroactively. Colorado's pension exemption applies to all pensions, regardless of where they were earned or which state you lived in when you retired.

However, you may still owe taxes to your former state of residence, depending on that state's rules and how long you lived there. Some states tax pensions only if you earned them while a resident; others tax pensions for life. You should check the tax rules of the state where you earned your pension and where you lived when you retired.

Once you establish Colorado residency, file your Colorado tax return, and have no income-earning work in another state, Colorado will not tax your pension income going forward.

Investment income and other retirement sources

The pension exemption covers only income from may have access to pensions and retirement accounts. If you have other sources of retirement income, Colorado taxes those at its standard rate. This includes interest from savings accounts, dividends from stocks or mutual funds, rental income, and income from part-time work.

If you withdraw money from a taxable brokerage account or sell investments at a gain, that income is taxable in Colorado. However, long-term capital gains (profits from investments held more than one year) receive preferential federal treatment and may be taxed at lower rates federally, though Colorado taxes them as ordinary income.

Annuities purchased outside of a retirement plan may have special rules. If you bought an annuity with after-tax dollars, only the earnings portion is taxable; the return of your principal is not. Consult a tax professional if you have a non-may have access to annuity, as the calculation can be complex.

Colorado income tax rates and brackets for other income

Colorado's state income tax rate is a flat 4.4% on all taxable income, regardless of how much you earn. This is one of the lowest state income tax rates in the country. However, this rate applies only to income that is not exempt — so wages, investment income, and business income are all taxed at 4.4%, while pensions and Social Security are not.

Colorado also allows a standard deduction, which reduces the amount of income subject to tax. For 2024, the standard deduction is $3,850 for single filers and $7,700 for married couples filing jointly. If your only income is a pension or Social Security, you may owe no Colorado tax at all if your income is below the standard deduction.

Some Colorado counties and cities also charge local income tax on top of the state rate. These vary by location, so check with your local tax assessor if you live in an area with local income tax.

How to report pension income on your Colorado tax return

You will receive a 1099-R form from the organization that pays your pension. This form shows the total amount distributed to you during the year. You use this form to report your income on both your federal and Colorado tax returns.

On your Colorado return (Form 104), you report the full amount from your 1099-R on the income line, then claim the pension exemption as a deduction. This reduces your taxable income to zero for Colorado purposes. You still file the return to show the state that you have pension income and are claiming the exemption.

If you have other income — wages, investment income, or self-employment income — you report that separately and pay tax on it. The pension exemption applies only to the pension portion of your income.

Frequently Asked Questions

Do I have to file a Colorado tax return if I only have pension income?

You must file if your income exceeds the standard deduction for your filing status, even though your pension is not taxed. Filing allows you to claim the pension exemption and shows the state you are not subject to tax. If your income is below the standard deduction, filing is optional but may be worthwhile if you had taxes withheld and are due a refund.

What if I take a lump-sum distribution from my pension instead of monthly payments?

Lump-sum distributions are treated the same as monthly pension payments under Colorado law — they are not taxed by the state. However, the entire amount may be subject to federal tax in the year you receive it, and you may owe federal estimated taxes. Some people roll lump sums into an IRA to spread the tax impact over time.

Are military pensions taxed in Colorado?

No. Military pensions receive the same exemption as all other pensions in Colorado. You will owe federal tax on military pension income, but Colorado does not tax it.

If I work part-time in retirement, do I pay tax on those wages?

Yes. Wages from part-time work are taxed by Colorado at 4.4%, even if you also receive a pension. Only the pension income is exempt; wages and self-employment income are fully taxable.

Can I deduct medical expenses or charitable donations to reduce my Colorado tax?

Colorado does not allow itemized deductions for state tax purposes. You can only claim the standard deduction. This means most retirees with only pension income pay no Colorado tax regardless of medical expenses or charitable giving.