Over the past two years, Missouri has quietly rewritten its tax code in a way that matters a great deal if you're retired or getting close. Three changes, all pointing the same direction: the state is asking retirees to hand over less of what they've worked to save. Here's what happened, in plain English — and, more to the point, how it changes the decisions we'd actually make in your plan.
1. Social Security and government pensions — no more Missouri tax (within limits)
Starting with the 2024 tax year, Missouri stopped taxing Social Security benefits at the state level. If you're 62 or older, 100% of your Social Security is now free of Missouri tax, no matter your income — the old income phase-out is gone. For many retirees, Social Security is the steady base of the whole retirement paycheck, so removing the state's cut is a quiet raise on the most dependable income you have.
Government pensions get a similar break, with two limits worth knowing. This covers pensions from government service — federal, state, or local — and it isn't limited to Missouri government work. A pension from any state's system qualifies (an Illinois university SURS pension, say, or a federal civil-service pension), as long as you're a Missouri resident. The two limits: the exemption is capped at roughly the maximum Social Security benefit ($46,381 for 2024, $47,633 for 2025), and it's reduced by any Social Security deduction you claim — so it's a generous break rather than an unlimited one.
One distinction is worth underlining, because it's the one people get wrong: this is government pensions. A private company pension — from an employer like Boeing or Emerson — still qualifies only for Missouri's much smaller private-pension deduction, capped at $6,000 per person and phased out at higher incomes. If your pension comes from a corporation rather than a government, most of it is still taxable in Missouri.
2. Capital gains — Missouri is the first state to fully exempt them
In 2025, Missouri went further and did something no other state has done: it stopped taxing capital gains for individuals entirely. A capital gain is simply the profit when you sell something for more than you paid for it — a stock, a mutual fund, a rental property, even cryptocurrency. As of January 1, 2025, Missouri lets individual filers deduct 100% of those gains, both short-term and long-term, from state income.
Two things to keep straight, because they change how you should read this. First, this is the state tax only — the federal capital-gains tax still applies exactly as before, so selling an appreciated investment isn't suddenly “free,” just meaningfully cheaper in Missouri. Second, the break only helps in a taxable account. Investments inside an IRA or 401(k) were never taxed on their capital gains to begin with — those withdrawals come out as ordinary income — and Roth withdrawals are already tax-free. So the exemption applies to what you hold outside your retirement accounts, not inside them.
3. On the horizon — a push to end the state income tax entirely
The newest development is still just that: a proposal. Governor Kehoe has made phasing out Missouri's income tax a signature goal, and a constitutional amendment to begin that path — now on the ballot as Amendment 5 — goes before voters on August 4, 2026. In broad strokes, it would lower income-tax rates over time as state revenue grows and lean more heavily on sales tax instead.
Whether it passes is genuinely uncertain, and it's not our place to tell you how to vote. We're watching it simply because, if it moves, it changes the math again. For now, Missouri still taxes ordinary income — wages, IRA and 401(k) withdrawals, and Roth conversions — at a top rate of 4.7%.
What this actually changes in a good plan
These aren't just headlines; they shift the sequence of moves that make a retirement plan tax-efficient.
Simplifying a concentrated or inherited portfolio just got easier. One of the most common things we untangle for new clients is a portfolio built around a single company's stock, or a tangle of funds inherited from a prior advisor. The thing that usually slows that cleanup down is the tax bill on selling. In Missouri, that bill just shrank — you now face only federal tax on those gains, not state — which can open the window to simplify sooner rather than dragging it out over many years.
Where you draw your spending from deserves a fresh look. Because gains in a taxable account are now untaxed by the state, while IRA and 401(k) withdrawals are still taxed as ordinary income, the relative cost of different ways to fund your spending has shifted. Which lever to pull, and in which year, is exactly the kind of thing we coordinate as we go.
Roth conversions still deserve attention — with a wrinkle. Conversions count as ordinary income, so Missouri still taxes them today. But if the income-tax phase-out gains traction, the calculus on how much to convert, and how quickly, could change. That's a “watch and adjust,” not a “do nothing.”
The theme underneath all of this: none of these decisions lives in isolation. Your Social Security timing, your withdrawal order, your gain harvesting, and your conversions all pull on the same rope. A change in state tax law is a reason to re-check the whole plan — not just one line of it.
What stays steady
It's worth saying plainly: your investment approach doesn't change because a tax law did. We still own the whole market at low cost, keep several years of spending set aside in a safe bucket so a downturn never forces a sale, and let time do the heavy lifting. Taxes shape the timing and the accounts we use — not whether the underlying strategy is sound.
If you're reading this from outside Missouri
Your state's rules are different, and some are far less generous. But the framework is identical everywhere we work: know exactly how your state treats Social Security, pensions, capital gains, and withdrawals — then build the plan around it. That coordination is the same job whether you're in St. Louis or St. Petersburg, and it's what we do for clients across the country.
The next step
If you're a Missouri retiree, this is a good year to make sure your plan is genuinely taking advantage of these changes rather than leaving them on the table. And if you're not certain whether it is, that's exactly the kind of thing we're happy to walk through together — just reach out.
This article is for educational purposes and reflects Missouri tax rules as of July 2026, which can change; the income-tax proposal (Amendment 5) has not been enacted and awaits the August 4, 2026 voter decision. It is not tax or legal advice, and your situation is unique — please talk with us or your tax professional before acting. For illustrative purposes only; results will vary.