Choosing where to live in retirement is as much about money as it is about lifestyle. State and local tax laws can have a big impact on how far your nest egg goes. This is especially true for families that rely on fixed incomes like Social Security, pensions, and required minimum distributions. There is no one “best” state for everyone, but some states consistently have lower taxes because they have no (or low) income tax, treat retirement income well, and have property and sales taxes that are easy to pay. We’ll talk about how state tax policy affects retirement income, point out states that are good for taxes, and give you some tips on how to compare places to move to.
How State Taxes Affect Retirees
Important tax levers that shape after-tax income:
- State income tax: Determines whether wages, pensions, IRA/401(k) withdrawals, and dividends/interest are taxed at the state level.
- Social Security treatment: Some states exclude Social Security benefits entirely; others follow federal rules or use income thresholds.
- Pension/retirement income rules: Many states partially or fully exempt public or private pensions; rules vary widely.
- Property taxes: Rates and assessments differ by county/city; homestead and senior exemptions can materially reduce bills.
- Sales/use taxes: Higher sales taxes increase day-to-day costs; some states exempt groceries or medicines.
Important: State policies change. Local (county/city/school) levies and fees can meaningfully alter the picture. Always confirm current rules with official sources before acting.
States Commonly Viewed as Tax-Friendly for Retirees
These states impose no state income tax, meaning Social Security, pensions, and withdrawals from traditional IRAs/401(k)s are not taxed at the state level (federal tax rules still apply).
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Wyoming
- Washington (no wage income tax; note separate payroll tax for WA Cares Program)
New Hampshire has been phasing out its tax on interest/dividends (investment income), historically not taxing wage income. Check the current year’s status if investment income is a large share of cash flow.
Selected Tax-Friendly States
Figures below describe state-level structures and typical characteristics. Property and sales taxes vary locally; ranges are shown for context.
| State | State Income Tax on Wages/Retirement | Social Security Taxed by State? | Typical Sales Tax (State Base)* | Property Tax Notes (Local Variation) |
|---|---|---|---|---|
| Florida | None | No | 6.0% (county add-ons vary) | Homestead exemption; county rates vary widely |
| Texas | None | No | 6.25% (local add-ons) | Higher average effective rates; senior freezes/exemptions may apply |
| Wyoming | None | No | 4.0% (local add-ons) | Generally low averages; depends on county |
| South Dakota | None | No | 4.2–4.5% (local add-ons common) | Moderate; local assessment practices matter |
| Nevada | None | No | 6.85% (local add-ons common) | Varies by county; some caps/exemptions available |
| Tennessee | None | No | 7.0% (local add-ons) | Moderate to higher in some counties; senior relief programs exist |
| Alaska | None | No | 0% state (local sales taxes) | Low to moderate; varies by borough |
| Washington | None on wages | No | 6.5% (local add-ons common) | Moderate; senior exemptions available in some counties |
What Else Moves the Needle
- Healthcare access and costs: Proximity to quality hospitals, Medicare Advantage/Medigap plan availability, and travel needs for specialists.
- Housing and insurance: Home prices, HOA dues, and homeowners/auto insurance premiums can offset tax savings (e.g., coastal windstorm or wildfire zones).
- Cost of living: Utilities, transportation, groceries, and services.
- Estate and inheritance taxes: A few states levy separate estate or inheritance taxes; rules differ from federal thresholds.
- Senior exemptions and credits: Homestead, age-based property tax freezes/deferrals, and circuit-breaker programs can be substantial.
Comparing Shortlists
Use a simple scoring sheet when evaluating candidates:
| Factor | Weight | State A | State B | State C |
|---|---|---|---|---|
| State income tax impact | 30% | |||
| Property tax after exemptions | 20% | |||
| Sales tax burden (local incl.) | 10% | |||
| Healthcare access/costs | 20% | |||
| Housing/insurance costs | 10% | |||
| Lifestyle (climate, family, amenities) | 10% |
Add notes on county-level taxes and specific neighborhoods; the “right” ZIP code often matters more than the right state.
Practical Steps Before Relocating
- Run a state-by-state tax projection: Model Social Security, pensions, RMDs, and portfolio withdrawals under each state’s rules.
- Get local quotes: Property tax estimates, homeowners/auto insurance, and utility averages for target neighborhoods.
- Confirm exemptions: Homestead, senior property tax relief, and credits; note application deadlines.
- Test-live if possible: Spend time in the area off-season to evaluate healthcare access, weather, and travel logistics.
- Coordinate with advisors: A tax professional and financial planner can integrate state taxes with investment and withdrawal strategies.
Conclusion
State tax policy can have a big effect on how much money you have to live on in retirement, but it’s only one part of the total cost of living. States with no income tax often make things better for families that get Social Security, pensions, and IRA/401(k) distributions after taxes. However, local property taxes, insurance premiums, and healthcare access can make the advantage bigger or smaller. The best choices take into account both taxes and the costs and quality of life preferences that are important to you. With a side-by-side look at county-level taxes and senior exemptions, retirement money can go further without losing the services and amenities that are most important.
Frequently Asked Questions
Do no-income-tax states always cost less in retirement?
Not all the time. Higher property taxes, sales taxes, or insurance premiums can make up for savings on income taxes. Costs for the county and city often decide the real outcome.
Are Social Security benefits taxed at the state level?
The state does not tax Social Security in states that do not have an income tax. There are different ways to treat Social Security in states that have an income tax. Some states completely exempt it, while others use income thresholds and a few apply partial taxation.
How are pensions and IRA/401(k) withdrawals treated?
In states without income tax, these withdrawals are not taxed at the state level. In some states, pensions and distributions may be fully taxed, partially exempt, or subject to income-based exclusions.
What about property taxes for homeowners age 65+?
A lot of states and localities offer senior homestead exemptions, valuation freezes, or circuit-breaker credits. The effect can be big, so it should be checked at the county level.
Which non-tax costs most often surprise retirees?
Homeowners insurance for coastal and wildfire areas, HOA dues, travel costs for healthcare, and local sales taxes. These should be part of any comparison.
How often do state tax rules change?
All the time. Legislatures can change the rules for property taxes, income tax brackets, exemptions, and credits for seniors. Check the rules on state revenue sites before you move.
Is moving necessary to reduce the tax burden?
Not always. You can increase your after-tax income without moving by using optimized withdrawal strategies, Roth conversions, qualified charitable distributions (QCDs), and property tax exemptions.
Updated by Albert Fang
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