The Best States to Retire for Taxes

The best states to retire for tax benefits are the ones that offer a range of lower taxes -- or none at all -- whether it's on income, property, sales tax, or inheritance. Although there's no avoiding federal tax, you can significantly lower your expenses by retiring to one of the many states that are more retiree-friendly.

It may not be the only factor or even the most important one in choosing where to retire. However, it could make a big difference in how much money you can spend on your retirement, improving your quality of life greatly. (See our Retirement Planning Guide.)

If you plan to leave a financial legacy behind, picking the right state can also result in a bigger after-tax inheritance for your heirs, making this an important part of retirement planning.

Most tax-friendly states

Most tax-friendly states for retirement

1. Alaska

One of the states with no income tax, Alaska doesn't have estate or inheritance taxes, either. It does not have state sales tax, but local tax can easily result in higher total sales taxes than other states have, especially considering that groceries are also taxed.

Alaska's median $3,716 property tax in 2022 is on the higher end of this group. However, the state's Permanent Dividend Fund, paid to residents and funded primarily from oil and gas production on state land, was $1,312 in 202e.

It has a very low average combined state and local sales tax rate of 1.76%, helping make Alaska tax-friendly for retirees.

2. Alabama

One of several Sunbelt states on the list, Alabama retirees benefit from no state income tax on Social Security and pension income and relatively low property tax. If you plan to leave a large estate, the Cotton State might also be attractive with no estate or inheritance tax.

However, non-retirement sources of income are fair game for state income tax, and it has some of the highest sales tax rates in the U.S.

3. Florida

The Sunshine State is a very popular place for retirees, and for good reason. It has no income tax on any income, median property taxes are on the lower end (and longtime residents can qualify for a large exemption), and it has low sales tax rates. It's also favorable for heirs, with no estate or inheritance tax.

4. Georgia

The Peach State joins neighbors Alabama and Florida with no tax on Social Security, estate, or inheritance tax. Like Florida, sales taxes are not particularly high, and property tax is generally low, based on median property values.

Although other sources of income are taxed, the state allows people 65 and over to deduct as much as $65,000 in retirement income per person from their taxes.

5. Iowa

The Hawkeye State is starting to move up the list of tax-friendly states for retirees. It does not tax Social Security income, and beginning in 2023, residents 55 and older will no longer pay income tax on other sources of retirement income.

Meanwhile, it is moving to a flat tax rate of 3.9% on other income in 2026. Also, on the positive side of the ledger, Iowa has no estate tax, and its inheritance tax is being phased out entirely by 2025.

The potential downside: Iowa's property tax rate is on the higher end, though lower property values offset the median property tax bill. If you intend to own a higher-value property, you may want to factor in a potentially higher tax bill than the median.

6. Mississippi

Yet another Sun Belt state on our list, the Magnolia State is probably the most tax-friendly state for retirees. It has relatively low property values and a lower property tax rate and exempts Social Security, pensions, IRAs, and 401(k) distributions from state income tax. It also has no estate or inheritance taxes, a plus for heirs.

However, even Mississippi isn't perfect, with a high state sales tax rate that includes food and groceries and a flat 5% tax rate on non-retirement income that exceeds $10,000.

7. New Hampshire

The Granite State lets people keep more of their hard-earned money, with no state tax on regular income and no tax on Social Security or pensions.

However, it does tax interest and dividend income that exceeds $2,400 per person, though even that tax is being phased out, dropping from 4% in 2023 to 3% in 2024 before being repealed in 2025. There is also no state sales tax in New Hampshire, and it has no estate or inheritance tax.

The downside: New Hampshire has some of the highest median property taxes and property tax rates in the U.S.

8. Nevada

With some of the lowest property taxes in the country, no state income tax, and no inheritance or estate taxes, plenty of people love to retire to Nevada.

On the downside, it does have some of the highest state sales tax rates, although groceries and prescriptions are exempt. On balance, there's a lot to like from a tax perspective about Nevada.

9. Pennsylvania

First, the less-attractive tax aspects of the Keystone State: Higher-than-average median property taxes and tax rates, taxes on non-retirement income sources, and an unfavorable inheritance tax that could be a dealbreaker if you plan to leave a large estate.

But there are a lot of very favorable tax reasons why Pennsylvania could be a good place to retire, including lower-than-average state sales tax rates and a very low 3.07% state income tax rate on non-retirement income sources.

10. South Dakota

The Mount Rushmore State is one of a handful of states with no income tax, a benefit for everyone but especially for retirees. It also has no inheritance or estate tax and a relatively low combined average state and local sales tax rate of 6.4%.

Relatively low property values mean a lower median property tax bill, but its effective property tax rate of 1.22% is on the higher end and a consideration if you're likely to own a high-value property.

11. Texas

The Lone Star State is another that's becoming more tax-friendly for retirees. It has no income tax, along with no estate or inheritance tax.

A current downside that may get better is higher local property tax: An amendment to the Texas Constitution is going before voters in November 2023 that is expected to significantly reduce property taxes in the state.

However, the average combined state and local sales tax rate of 8.2% is one of the highest in the country.

12: Tennessee

One of the most tax-friendly states, even from this list, the Volunteer State has no state income tax, no estate or inheritance tax, and one of the lowest median property tax bills and property tax rates in the country.

You may end up paying more on sales tax; Tennessee charges a 7% state sales tax, while local sales tax can be another 2.75%. The average Tennessean pays 9.55% in sales tax.

13. Wyoming

Not only does Wyoming have no state income tax on any source of income, but it also has no estate or inheritance tax. The Equality State also has some of the lowest median property tax bills and property tax rates in the U.S. and a very appealing 4% state sales tax.

Even with a maximum 2% local sales tax rate, the average 5.36% combined sales tax rate makes Wyoming one of the most tax-friendly states to retire to.

Expert tips

Expert tips for retirement planning

1. Think about the bigger picture first

Taxes are a big deal when you're on a fixed income or stretching a nest egg out across many years, but it's not the only factor to consider when mapping out your future in retirement. Proximity to (and travel costs to reach) friends and family also matter, along with choosing a place where the climate, lifestyle, available activities, and social connections will result in the quality of life you want.

2. Find out how much will it cost to get (and stay) there

Sometimes in our rush to save money, we can spend more than we saved to make it happen. Be sure to calculate relocation expenses, increased travel costs, differences in energy, insurance, and other living expenses versus where you currently live.

3. Make sure the tax benefits add up for you

This is part of the prior tip, but it's a reminder to do the math, and then do it again. Make sure your calculations are based on conservative, real-world numbers along with the rest of your retirement plans.

4. Give it a test drive

Nobody buys a car without taking it for a spin around the block, so maybe you should do the same thing with a major relocation to a new state. Instead of fully committing, it may be worth finding a short-term rental in the area you want to settle, then spend a few weeks or even longer there to see if it meets your expectations.

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Should you consider these states for retirement?

Each of our baker's dozen list of tax-friendly states to retire in offers something for just about every retiree. Factors to consider include your sources of income, how much you expect to spend on a property, and how much you expect to spend on things ranging from groceries to gasoline to gloves.

For example, if boating is a big part of your retirement plans, you may want to consider fuel taxes, which can vary significantly from state to state. Do you intend to leave a large estate behind to your heirs? How large it is and who will inherit it could also be an important factor to consider if you want to minimize or avoid estate and inheritance taxes.

Remember that it's a balancing act: No state is likely to have a perfect tax regime for you; factor in each of the different taxes to make the most of your retirement income and wealth while also settling in a place where your family will be happy.