The Top States for Retirement Taxes 2024

When choosing where to spend your golden years of retirement, you may consider several factors. Do you want to live closer to your children and grandchildren? Do you want to live somewhere warm? Do you want to live near a reputable health care system? As you decide where to live in retirement, make sure you consider another essential factor: state taxes.

Where you live can have a significant impact on the taxes you'll pay during your retirement. Depending on the state where you live, you may pay state taxes on Social Security payments, retirement account distributions, or pension income you receive. In other states, this income may be exempt or deductible from your taxable income. Learning about some tax-friendly states for retirees can be valuable as you decide where to spend your retirement.

Social Security

Unless you fall under the minimum income threshold, you'll likely pay federal income taxes on the Social Security benefits you receive in retirement. However, most states don't tax Social Security income. In 2024, only nine states levy taxes on Social Security benefits. These states are:

• Colorado.
• Connecticut.
• Kansas.
• Minnesota.
• Montana.
• New Mexico.
• Rhode Island.
• Utah.
• Vermont.

While these states tax Social Security income, you may be eligible for deductions or exemptions in some states. For example, in Colorado, retirees over 65 can deduct their Social Security benefits from their taxable income.

The remaining states do not tax Social Security payments at the state level. If you live in one of these states, you won't pay state taxes on this income during your retirement.

Retirement accounts and pensions

If you have a retirement account, such as a 401(k) or an IRA, you may pay state taxes on this income in retirement. Some states don't offer any exemptions on withdrawals from these accounts, whereas others offer some credits or deductions. For example, in Arkansas, you may be able to deduct up to $6,000 of your retirement income.

For pensions, 15 states exclude this income from state taxes. Other states may offer credits or exemptions on pension income.

Property and sales taxes

Of course, you may pay other taxes during your retirement, including property and sales taxes. Property taxes vary widely among states. Some states offer property tax exemptions, often known as homestead exemptions, which may help lower your overall property tax bill.

It's also essential to consider sales taxes in your state as you consider how you will live on a fixed income. Only five states don't levy state sales taxes — Alaska, Delaware, Montana, New Hampshire, and Oregon — although Alaska allows local municipalities to charge sales taxes. Among states with sales taxes, some have much higher rates than others. Louisiana and Tennessee have the highest sales tax rates in the nation, at 9.55% and 9.547%, respectively.

Some states may offer sales tax exemptions that apply to retirees, such as for prescription medications.

Best states for retirement for taxes

When you consider the various taxes on retirement income, some states offer more tax benefits for retirees than others. Here are the 10 best states for retirement for taxes.

Alaska

Alaska has no state income tax, so it won't tax the income you receive from Social Security, 401(k) or IRA distributions, or pensions. It also doesn't have estate or inheritance taxes, which can be helpful if you plan to leave money, property, or other assets to your loved ones after your death.

Although Alaska offers many tax benefits for retirees, it has high property taxes compared with many other states. Additionally, although the state doesn't have a sales tax, it allows local governments to set their own sales tax rates. Depending on your city, sales tax rates in Alaska can be as high as 7.5%.

• Property tax collections per capita: $2,276.
• Average combined state and local sales tax rate: 1.76%.

Florida

Florida has a reputation for catering to retirees, and this holds true for taxes. The state has no income tax, meaning you won't pay a tax on your pension payments or retirement account distributions. Florida also has no estate or inheritance taxes if you plan to leave something for your loved ones.

Compared with other states, Florida has lower median property taxes, and some homeowners may qualify for favorable homestead exemptions if they've lived there for many years. A potential drawback of living in Florida is the high gas tax, which may be worth considering if you plan to drive often.

• Property tax collections per capita: $1,541.
• Average combined state and local sales tax rate: 7.002%.

Iowa

Iowa recently eliminated sales tax on retirement income, making this a more tax-friendly state for retirees. If you're 55 or older on Dec. 31 of the tax year, you may be eligible for an exclusion on retirement income, including 401(k) and IRA distributions and qualifying pension plans. On other types of income, the state levies an income tax of up to 6%.

While Iowa currently imposes an inheritance tax, it is in the process of phasing out this tax. It will continue to reduce rates on this tax until 2025, when it will be eliminated.

• Property tax collections per capita: $1,806.
• Average combined state and local sales tax rate: 6.94%.

Mississippi

Although Mississippi has a flat 5% income tax, this doesn't apply to retirement income. In this Southern state, retirement income, pensions, and annuities are not subject to income tax, as long as you meet the requirements of your retirement plan. However, If you take early distributions, that income may be taxable.

Mississippi offers other tax benefits for retirees, including lower property taxes. It also has no estate or inheritance taxes. However, it has a slightly higher sales tax rate than some other states and imposes a tax on groceries.

• Property tax collections per capita: $1,167.
• Combined state and local sales tax rate: 7.07%.

Nevada

Known for the glittering lights of Las Vegas, Nevada can also be a great place to retire if you want to pay lower state taxes. There's no individual income tax, so you can avoid paying state taxes on your retirement benefits and other sources of income. Nevada also has lower median property taxes than most other states on this list.

On the other hand, Nevada has a high state sales tax rate, which can affect the cost of living in this state. However, it offers some notable exemptions, including groceries and prescriptions.

• Property tax collections per capita: $1,153.
• Average combined state and local sales tax rate: 8.23%.

Pennsylvania

Pennsylvania ranks highly for retirees because it doesn't tax Social Security and traditional retirement benefits, as long as you've met the requirements for retirement under an employer's plan. If you have additional sources of income during retirement, the state levies a flat 3.07% personal income tax.

The Keystone State ranks firmly in the middle for property taxes among all states. If you plan to leave an inheritance to a loved one, it's also worth noting Pennsylvania is one of six states with an inheritance tax.

• Property tax collections per capita: $1,644.
• Average combined state and local sales tax rate: 6.34%.

South Dakota

In South Dakota, you won't pay state taxes on your retirement income, since the state levies no income tax on its residents. If you receive income from other sources, such as investments, you can also avoid paying income tax in the Mount Rushmore State.

South Dakota falls somewhere in the middle for property taxes, and it has a low state sales tax rate. However, South Dakota continues to impose a tax on groceries, unlike some other states that have dropped this tax.

• Property tax collections per capita: $1,606.
• Average combined state and local sales tax rate: 6.4%.

Tennessee

There's a lot for retirees to like about living in Tennessee. The state has no individual income tax, and it also has no estate or inheritance taxes. Additionally, Tennessee has some of the lowest property tax bills in the country, which can help you save money if you own a home in the state.

However, you may pay more in sales taxes in Tennessee. There's a 7% state sales tax, and local sales tax rates can be up to 2.75%. Also, Tennessee is another state that charges tax on groceries.

• Property tax collections per capita: $845.
• Average combined state and local sales tax rate: 9.55%.

Texas

Texas offers some tax benefits for retirees. It has no income tax, so you won't pay state taxes on your retirement earnings. There's also no estate or inheritance taxes in Texas.

Property and sales taxes are higher in Texas than in some other states on this list, however. Keep those taxes in mind if you're considering a move to the Lone Star State.

• Property tax collections per capita: $2,216.
• Average combined state and local sales tax rate: 8.2%.

Wyoming

In Wyoming, there's no state income tax, allowing you to avoid paying state taxes on any income you receive during retirement. Wyoming also has a low state sales tax and no estate or inheritance taxes.

Overall, Wyoming is a tax-friendly state for retirees. If you plan to purchase an electric vehicle, however, note that Wyoming has a high EV tax compared with other states.

• Property tax collections per capita: $2,163.
• Average combined state and local sales tax rate: 5.36%.

Plan for your retirement with Blueprint Income

Although it's important to think about where you'll live and what you'll pay in taxes, there are other factors to consider as you plan for retirement. At Blueprint Income, we can help you achieve financial security so you can focus on enjoying your retirement to the fullest. For more information about our financial products and services, check out our guide.

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