Making ends meet in retirement can be a challenge, and you want to make sure that your money goes as far as it can. Protecting your assets from state tax agencies is an important aspect of smart financial planning, and some states are much grabbier than others when it comes to retirees and their money. The following 10 states are attractive for retirees, imposing fewer taxes on income than their peers, according to the latest survey from Bankrate. Although taxes aren't the only important aspect in choosing a place to live in retirement, they should nevertheless play a role in helping make the best decision for your situation.

Top 10 tax-friendly states for retirement

  1. Alaska
  2. Wyoming
  3. South Dakota
  4. Tennessee
  5. Texas
  6. Louisiana
  7. New Hampshire
  8. Nevada
  9. South Carolina
  10. Mississippi

Data source: Bankrate.

Why did these states make the list?

These 10 states might not look like the ideal retirement destinations from a lifestyle perspective, but in terms of taxes, many of them routinely show up at the top of tax-friendly lists. The top three entries on the list, as well as Texas and Nevada, don't impose a state income tax on any of the earnings or other income of their residents. Two more, Tennessee and New Hampshire, have state income taxes only on interest and dividend income. In Tennessee, moreover, the first $1,250 in such income is also tax-free.

Some states on the list have state income taxes but have generous exemptions specifically for retirees. For instance, Louisiana doesn't tax Social Security, military, civil service, or state and local government pension income, and up to $6,000 in private pension income is also exempt. Moreover, income taxes are relatively low, with rates ranging from 2% to 6%. Similarly, Mississippi exempts all qualified retirement income, with a 3% to 5% rate on other income. South Carolina also has a Social Security exemption and a deduction for retirement income in calculating state income tax, with rates that range from 3% to 7%.

Keyboard with blue tax key.

Image source: Getty Images.

Going beyond income tax

Many lists of tax-friendly states focus exclusively on income tax, but for retirees, that's only part of the equation. Property taxes also play a role, and the best states have provisions that offer property tax exemptions or limits for those 65 or older, as well as relatively inexpensive tax levies. Moreover, because retirees are in a time of their lives where they're spending down assets, sales taxes are also important.

Of the states in the top 10, New Hampshire has no sales tax, and Alaska imposes only local sales taxes. At the other end of the spectrum, Tennessee and Louisiana are among the five worst states in terms of total state and local sales tax rates, and Texas and Nevada also get substantial amounts of their state tax revenue from sales tax.

Property taxes in most of these states are also relatively low, with the notable exceptions being New Hampshire and Texas. With no other revenue source, New Hampshire taxes property fairly highly. However, many of the states on this list, especially those that are in the South, offer relatively modest real estate costs. That can ameliorate the impact of high property tax rates and can bring overall tax costs for retirees under control.

Be tax-smart about your retirement

Obviously, retirees choose a retirement destination based on more than just taxes. Even the Bankrate survey admitted as much, finding that their top overall picks for most retiree-friendly states included several states that scored very badly on the tax aspect. Issues like overall cost of living, quality of healthcare, and having a well-developed community of seniors are also critical in providing you with an environment in which you'll be both comfortable and financially secure.

Still, it's important to pay some attention to money matters when you retire, and keeping taxes in mind can help you stretch your retirement savings further. That way, you'll have more money left to enjoy your golden years in style.

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