Does New Mexico Tax Retirement Income?

Partly. New Mexico taxes some Social Security benefits, subject to an exclusion or age rule.

Social Security included in federal AGI is fully exempt when federal AGI is under $100,000 (single), $150,000 (joint, head of household, surviving spouse), or $75,000 (married filing separately). One dollar over the line and the entire taxable benefit is taxed; there is no phase-out.

The New Mexico answer is separate from the federal one. Depending on combined income, up to 85% of Social Security benefits can be taxable on the federal return regardless of what New Mexico does, so the state rule changes the state line only. Our guide to states that do not tax Social Security shows where New Mexico sits among the states that still tax benefits.

Partly. New Mexico taxes some pension income, subject to an exclusion or age rule.

Public and private pensions are taxable. The only general break is the exemption for persons 65 or older, up to $8,000 per person, which depends on federal AGI rather than on the type of income.

The age-65 exemption is $8,000 per qualifying person only when federal AGI is $18,000 or less (single) or $30,000 or less (joint). It steps down $1,000 at a time and reaches zero above $28,500 of AGI for a single filer and $51,000 for a joint return, so a retiree with a normal pension and 401(k) gets nothing. New Mexico also uses the federal standard deduction amount, which for 2026 is $18,150 for a single filer age 65 or older.

Public and private pensions, annuities, and retirement-plan distributions do not always get the same treatment. The pension comparison lists which states exempt pensions broadly, partly, or only for certain plans.

Partly. New Mexico taxes some traditional 401(k) and IRA withdrawals, subject to an exclusion or age rule.

Traditional 401(k) and IRA withdrawals are taxable as part of federal AGI, at rates from 1.5% to 5.9%. A large withdrawal can also push AGI past the Social Security cliff.

Two timing points matter in New Mexico. A Roth conversion is taxable in the year it is done, and New Mexico starts from federal adjusted gross income, so a large conversion can land in a year when the state exclusion does not cover it. Qualified Roth withdrawals later are generally not taxable at either level. Required minimum distributions follow the same New Mexico rules as any other traditional-account withdrawal.

Every state page on this site runs the same retiree profile so the states can be compared: $30,000 of Social Security, $40,000 withdrawn from a traditional 401(k), and a $20,000 private pension, $90,000 in total.

A single 68-year-old with $30,000 of Social Security, $40,000 from a 401(k), and a $20,000 private pension has federal AGI of about $85,500, under the $100,000 cliff, so the $25,500 of taxable Social Security is exempt. The $60,000 of pension and 401(k) income is taxed and, after the federal-equivalent standard deduction, the New Mexico tax is roughly $1,550. The age-65 exemption is zero at this income.

Federal AGI of about $85,500 clears the $100,000 test, so subtract the $25,500 of taxable Social Security, leaving $60,000. Subtract the $18,150 standard deduction (New Mexico adopts the federal amount), and taxable income is about $41,850; the age-65 exemption does not apply because AGI is above $28,500. Tax is $1,165.50 on the first $33,500 plus 4.7% of the remaining $8,350, roughly $1,550. Contrast: a $150,000 lump-sum IRA withdrawal lifts AGI to about $235,500, past the cliff, so the $25,500 of Social Security becomes taxable too; taxable income is roughly $217,350 and the tax is roughly $10,200, about $8,650 more, of which roughly $1,250 is tax on Social Security that was free the year before. Splitting the withdrawal across two years keeps AGI under $100,000 each year and preserves the exemption.

The same $90,000 profile looks different a state line away. The rows below come from the reviewed 51-state table; each state name links to its own guide.

• Arizona: treats Social Security as exempt, pensions as partially taxed, and 401(k) and IRA withdrawals as taxed, with a top rate of 2.50% and up to $2,500 for qualifying government pensions.
• Texas: has no individual income tax at all.
• Colorado: treats Social Security as partially taxed, pensions as partially taxed, and 401(k) and IRA withdrawals as partially taxed, with a top rate of 4.40% and retirement subtraction up to $20,000 or $24,000.

The Social Security exemption is a cliff, not a phase-out. A single retiree at $99,900 of AGI pays nothing on Social Security; at $100,100, every taxable dollar of it is taxed. Required minimum distributions and Roth conversions are the usual culprits.

Military retirement: Each armed forces retiree, and each surviving spouse of one, can exempt $30,000 of military retirement pay for tax years 2024 through 2026. A 2026 bill to make the exemption 100% (HB 221) died in committee, and the $30,000 exemption sunsets after 2026 unless the Legislature extends it. See the military retirement tax map for every state's treatment.

Estate and inheritance tax: New Mexico has no estate or inheritance tax.

Selling a home or investments in New Mexico: retirement-income rules do not cover capital gains. See New Mexico capital gains tax before selling appreciated property or a brokerage position in the year you move or retire.

• Confirm the exclusion you are claiming. The age-65 exemption is $8,000 per qualifying person only when federal AGI is $18,000 or less (single) or $30,000 or less (joint). It steps down $1,000 at a time and reaches zero above $28,500 of AGI for a single filer and $51,000 for a joint return, so a retiree with a normal pension and 401(k) gets nothing. New Mexico also uses the federal standard deduction amount, which for 2026 is $18,150 for a single filer age 65 or older.
• Part-year residents. If you moved into or out of New Mexico during the year, retirement income is generally allocated to the period of residency, and the former state may still tax distributions received before the move. Document the move date, the new domicile, and where each distribution was received.
• Withholding and estimates. Pension and IRA custodians often withhold federal tax but not New Mexico tax. If New Mexico taxes any part of your retirement income, check whether quarterly estimated payments are needed to avoid an underpayment penalty.
• Federal side. The federal return has its own rules: up to 85% of Social Security can be taxable, the temporary $6,000 federal senior deduction is available for 2025 through 2028 subject to income limits, and Roth conversions are taxed in the conversion year. State exemptions do not change any of that.
• Large one-time distributions. Run the AGI test before any conversion, sale, or lump-sum withdrawal. When a large distribution is unavoidable, pairing it with a qualified charitable distribution or splitting it across December and January can keep both years under the $100,000 or $150,000 line.

Comparing states before a move? Use the retirement taxes by state table and the moving states tax guide, and read retirement tax planning for how distributions, conversions, and a move are sequenced together.