How retirement income is taxed in Vermont
Vermont taxes retirement income at progressive rates up to 8.75%. Here's what that means for your retirement plan and how to manage it.
Retirement tax landscape
Social Security is exempt if income is below $50,000 (single) / $65,000 (married). Retirement account withdrawals get a $10,000/$20,000 exclusion.
Understanding how Vermont treats each type of retirement income is essential for planning your withdrawals, conversions, and Social Security timing. The interaction between state and federal taxes determines your true after-tax income each year.
What's taxed and what's not
Exempt below certain income thresholds. May become taxable above the threshold.
Partially exempt with deductions or exclusions.
Fully taxable as ordinary income.
Qualified distributions are fully exempt at both the state and federal level.
Tax brackets
Vermont runs four progressive brackets, with rates from 3.35% to 8.75%. The schedule below switches by filing status; standard deduction is shown beneath each.
| Taxable income | Rate |
|---|---|
| Up to $47,900 | 3.35% |
| $47,900 – $116,000 | 6.6% |
| $116,000 – $242,000 | 7.6% |
| Above $242,000 | 8.75% |
| Taxable income | Rate |
|---|---|
| Up to $79,950 | 3.35% |
| $79,950 – $193,300 | 6.6% |
| $193,300 – $294,600 | 7.6% |
| Above $294,600 | 8.75% |
| Taxable income | Rate |
|---|---|
| Up to $66,200 | 3.35% |
| $66,200 – $171,000 | 6.6% |
| $171,000 – $276,850 | 7.6% |
| Above $276,850 | 8.75% |
Vermont's rates are relatively high, with the top rate of 8.75% affecting retirees with moderate to high income.
Strategies to reduce your tax burden
Vermont's full Social Security exemption phases out above $50,000/$65,000 AGI, so the central question is whether you can stay below: convert Roth balances before claiming SS, sequence withdrawals to control AGI, and time Social Security around the threshold.
Roth conversions before retirement. Converting traditional IRA balances to Roth during lower-income years means paying Vermont tax now at lower rates, then taking tax-free Roth withdrawals later. See the full guide to Roth conversions.
Withdrawal sequencing. The order you draw from different accounts each year matters. Drawing from taxable brokerage accounts before tapping tax-deferred accounts can keep your Vermont ordinary income lower. Read more in which accounts to withdraw from first.
Social Security timing. Optimizing when you claim Social Security affects both your federal and state tax picture. See when to claim Social Security.
Modeling your retirement taxes
The interaction between Vermont's tax rules and federal taxes is too complex to estimate by hand. A year-by-year projection shows your actual tax burden for every year of retirement.
Drawdown Arc's projection engine includes Vermont's full bracket structure, standard deduction, and retirement income exemptions. Set your state to Vermont and enter your account balances, pension, and Social Security timing: the projection shows your Vermont state tax alongside federal tax for every year.
State tax modeling is a Pro feature. The free calculator shows your full federal tax projection: upgrade to Pro to add Vermont (or any of the 50 states + DC) to your model.