Iowa’s Tax Policy Reforms Support Life After Career

This month’s Business Monthly highlights the transition from career to what some call “life after career.” With Iowans living longer, healthier lives, the traditional idea of retirement is changing. More individuals are continuing to contribute to their communities—through volunteerism, civic leadership, mentorship, and philanthropy—well into what was once considered retirement.

Recognizing this, ABI has long advocated for policies that make Iowa an attractive place to live throughout every stage of life, including these post-career years. Thanks to recent reforms, Iowa is now among the most tax-friendly states for retirees.

In 2022, with the passage of Senate File 2317, Iowa made sweeping changes to its tax code:

• Retirement Income Exemption – All retirement income — including pensions, IRAs, and 401(k)s — is now exempt from state income tax.
• Support for Employee-Owned Companies – Income from the sale of Employee Stock Ownership Plan (ESOP) shares is also exempt, a critical incentive for those who helped build employee-owned businesses.
• Farmer Tax Equity – Special provisions ensure fairness for Iowa’s agricultural community. Income from renting farmland held for at least 10 years is treated as retirement income and exempt from tax. Additionally, when a farmer retires and sells farm equipment or liquidates a livestock operation, those transactions are non-taxable.

While Iowa has not eliminated income taxes altogether, the state has transitioned to a flat 3.8% rate — one of the lowest in the country. This makes Iowa less vulnerable to losing late-career professionals and retirees to states with no income tax, where individuals often relocate for “six months and a day” to avoid state-level taxes.

By reducing the incentive to leave, these reforms keep parents closer to children and grandchildren and allow retirees to continue investing their time, talent, and resources locally. Communities benefit from their leadership in nonprofits, civic organizations, cultural amenities, and mentorship of the next generation of Iowans.

Iowa’s tax reforms are about more than just dollars — they’re about people. As more Iowans choose to remain rooted here during life after career, our communities gain strength, stability, and the invaluable wisdom of individuals who still have much to give.