Vermont Retirement Tax Guide 2026: Graduated Rates, Social Security Rules & Gold IRA Strategy

Vermont imposes a state income tax on most forms of retirement income, including IRA withdrawals, 401(k) distributions, and investment income. However, the state partially exempts Social Security benefits and offers graduated rates that keep the tax burden manageable for lower- and middle-income retirees. Understanding Vermont’s tax structure is essential for anyone planning their retirement savings strategy here in 2026.

This guide covers Vermont’s income tax brackets, Social Security exemption rules, IRA and 401(k) taxation, Gold IRA considerations, estate tax, property taxes, and how Vermont compares to neighboring states for retirement planning purposes.

Vermont Income Tax Brackets 2026

Vermont uses a graduated income tax system with four brackets. For 2026, the rates are:

Single filers:

• 3.35% on taxable income up to $45,400
• 6.60% on income from $45,401 to $110,050
• 7.60% on income from $110,051 to $229,550
• 8.75% on income over $229,550

Married filing jointly:

• 3.35% on taxable income up to $75,850
• 6.60% on income from $75,851 to $183,400
• 7.60% on income from $183,401 to $279,650
• 8.75% on income over $279,650

Vermont’s top marginal rate of 8.75% is significant — comparable to Minnesota (9.85%) and Oregon (9.9%). For retirees with substantial IRA balances or pension income, Vermont’s state income tax is a meaningful factor in retirement planning.

Social Security Benefits in Vermont 2026

Vermont provides a partial Social Security exemption that benefits lower- and moderate-income retirees. Under current Vermont law, Social Security benefits are fully exempt from Vermont income tax if your federal adjusted gross income (AGI) is below:

• $45,000 for single filers
• $60,000 for married filing jointly

Above these thresholds, Vermont provides a partial exemption that phases out as income rises. If your income exceeds approximately $55,000 (single) or $75,000 (MFJ), the full amount of federally taxable Social Security income becomes taxable at Vermont rates.

For context: if you and your spouse have combined income (AGI) of $58,000 — just below the $60,000 MFJ threshold — your Social Security income is fully exempt from Vermont state tax. If your combined income is $70,000, a portion becomes taxable in Vermont.

Planning your income to stay below Vermont’s Social Security exemption thresholds is one of the most effective tax strategies available to Vermont retirees. This often means managing Roth conversions, IRA withdrawals, and capital gains realizations carefully each year.

IRA and 401(k) Distributions in Vermont 2026

Vermont does not provide a broad exemption for IRA or 401(k) distributions. Traditional IRA withdrawals and 401(k) distributions are taxed as ordinary income at Vermont’s graduated rates — the same rates applied to wages. There is no special exclusion for retirement account income, pension payments from private employers, or annuity income.

For a Vermont retiree drawing $60,000 from a traditional IRA, the state income tax on that distribution would be approximately $2,810 (3.35% on the first $45,400, plus 6.60% on the remainder) — on top of federal income tax. At higher income levels, Vermont rates climb to 7.60% and 8.75%.

Vermont does not tax Roth IRA qualified distributions. If a Roth IRA distribution meets the federal requirements for tax-free treatment (account held five-plus years, age 59½ or older), Vermont treats it as nontaxable — the same as at the federal level.

Government pension income from Vermont state and local government plans may have specific treatment — consult Vermont’s Department of Taxes or a tax professional for the most current details on your specific pension type.

Gold IRA Considerations for Vermont Retirees 2026

A Gold IRA is a self-directed IRA holding IRS-approved physical precious metals. Distributions from a traditional Gold IRA are taxed exactly like traditional IRA distributions: as ordinary income at both the federal and Vermont state levels. For Vermont retirees, this means Gold IRA distributions are subject to Vermont income tax at rates up to 8.75%.

Despite Vermont’s income tax, a Gold IRA can still be a sound component of a Vermont retirement savings strategy for several reasons. First, the federal tax-deferral benefit is identical to any traditional IRA: your metals grow tax-deferred until withdrawal. Second, Vermont’s state tax on distributions applies regardless of asset class — stocks, bonds, and gold all receive the same tax treatment in a traditional IRA. Third, for high-net-worth retirees with estate planning concerns, Vermont’s estate tax (discussed below) creates specific planning considerations where a Gold IRA can be a useful tool.

For Vermont retirees who want to add physical assets to their retirement accounts, working with a reputable Gold IRA custodian is essential. Augusta Precious Metals is known for its education-first approach and transparent fee structure.

Roth Conversion Strategy in Vermont

Vermont taxes Roth conversions as ordinary income in the year of conversion, at rates up to 8.75%. This makes Vermont more expensive for Roth conversions than no-income-tax states like New Hampshire (Vermont’s neighbor) or Wyoming. However, Roth conversions in Vermont can still make sense if your goal is to reduce future RMDs, lower long-term estate tax exposure, or reduce the amount of income subject to Vermont’s Social Security income thresholds in future years.

Key Roth conversion strategies for Vermont retirees include:

• Pre-RMD conversions: Converting in the years between retirement and age 73 (when RMDs begin) at lower income levels, while still below the Vermont Social Security exemption thresholds
• Partial conversions: Converting only enough each year to fill the 3.35% Vermont bracket (up to $45,400 single / $75,850 MFJ), limiting the Vermont tax cost
• IRMAA management: Keeping MAGI below $103,000 (single) / $206,000 (MFJ) to avoid Medicare Part B surcharges while still converting meaningful amounts

Vermont Estate Tax 2026

Vermont levies an estate tax on taxable estates exceeding $5 million. The Vermont estate tax rate ranges from 16% to 20% on the taxable estate (the portion above the $5 million exemption). Vermont is one of approximately a dozen states that still maintain an independent state estate tax.

For high-net-worth retirees with significant IRA balances, real estate, investment accounts, and life insurance, Vermont’s $5 million exemption may be relevant. Strategies to consider include:

• Lifetime gifts to reduce the taxable estate (annual federal gift exclusion: $18,000 per recipient in 2026)
• Irrevocable trusts to move assets outside the taxable estate
• Roth conversions to convert traditional IRA assets (which are included in the taxable estate) into Roth assets that grow tax-free and may be distributed tax-free to heirs

Vermont does not have an inheritance tax — the estate tax is imposed on the estate of the deceased, not on beneficiaries receiving assets.

Property Taxes in Vermont 2026

Vermont has among the highest effective property tax rates in New England, averaging approximately 1.73–1.90% of assessed value. For a $350,000 home, expect annual property taxes of $6,055 to $6,650 — substantially above national averages.

Vermont’s property tax system has a unique feature: a portion of property tax funds the state education fund, and the “education property tax” is assessed statewide. Vermont offers a Property Tax Adjustment (homestead declaration credit) for owner-occupied residences that ties property tax burden to household income — lower-income homeowners pay a smaller percentage of their income in property tax. This can significantly reduce the effective property tax for retirees with moderate incomes.

Renters in Vermont may also qualify for a Renter Credit if their income falls below certain thresholds.

Sales Tax in Vermont 2026

Vermont levies a 6% state sales tax. Vermont does not tax most grocery food purchases (unprepared food is exempt), which is a meaningful benefit for retirees. Meals at restaurants are taxed at 9%. Clothing is exempt from the state sales tax. Prescription drugs are exempt.

Vermont vs. New Hampshire for Retirement

The most direct comparison for Vermont retirees is neighboring New Hampshire, which eliminated its Interest and Dividends Tax as of January 1, 2025, making it a fully income-tax-free state. A Vermont retiree drawing $80,000 from traditional IRAs plus Social Security above the exemption threshold could owe $3,000–$6,000+ in Vermont state income tax annually. In New Hampshire, they would owe zero state income tax on the same income. Vermont’s estate tax (5% threshold) vs. New Hampshire’s no estate tax is another significant planning consideration for high-net-worth households.

Frequently Asked Questions: Vermont Retirement Taxes 2026

Does Vermont tax Social Security benefits?

Vermont partially exempts Social Security. Benefits are fully exempt if your federal AGI is below $45,000 (single) or $60,000 (married filing jointly). Above those thresholds, a partial exemption phases out, and Social Security becomes fully subject to Vermont income tax at higher income levels.

Are IRA withdrawals taxed in Vermont?

Yes. Traditional IRA and 401(k) distributions are taxed as ordinary income at Vermont’s graduated rates (3.35%–8.75%). Roth IRA qualified distributions are not taxable in Vermont.

Does Vermont have an estate tax?

Yes. Vermont imposes an estate tax on estates exceeding $5 million, at rates from 16% to 20%. Vermont has no inheritance tax.

How does a Gold IRA work for Vermont retirees?

Gold IRA distributions are taxed as ordinary income in Vermont, at the same graduated rates as traditional IRA withdrawals (up to 8.75%). The federal tax-deferral benefit of a traditional Gold IRA is identical to any other IRA. Vermont’s estate tax may make a Gold IRA a useful tool for certain estate planning strategies.

What is Vermont’s income tax rate for retirees?

Vermont’s graduated rates range from 3.35% to 8.75%, depending on your income level and filing status. Most moderate-income retirees will pay between 3.35% and 6.60% on their retirement income at the Vermont level.