Best and Worst Retirement Tax States

If you’re looking for the cheapest states to retire in, you’ll want to do your research on the most tax-friendly states first. That’s because states with lower tax rates can help you stretch your income—and not all states treat retirement taxes the same.

 

 

Here is our breakdown of the best retirement states for paying the fewest taxes, starting with the most friendly ones.

 

Best retirement-tax states

Florida, Georgia, Mississippi, South Dakota, Wyoming, Nevada, and Alaska are all very tax-friendly states for retirees. Of course, you might not be considering any plans to move to Alaska anytime soon. With all of its beaches and temperate weather, this is also the reason why Florida is such a popular place for retirement. To understand why Florida is considered very tax-friendly, let’s take a closer look at the details.

 

Cheapest states to retire in: Florida

Florida has no state income tax. This is a big deal for people on a fixed income because it means your Social Security retirement benefits, pension income and income from an IRA or a 401(k) are all untaxed. Should you choose to pick up a side hustle, that income will also remain untaxed although you’ll still have to pay federal taxes on all of it.  If you’re looking to buy property, property tax in Florida is close to the national average. The same can be said of sales taxes. And Florida also has no estate or inheritance tax.

 

Wyoming, Nevada, South Dakota, and Alaska are also states that don’t charge income tax. Georgia and Mississippi on the other hand, exempt retirement tax and have moderately low tax rates in other categories.

 

Mostly tax-friendly states for retirement

The most popular states in this category include Texas, Colorado, and South Carolina. These states don’t tax Social Security income and offer an additional deduction on some or all other forms of retirement income. Mostly tax-friendly states also have relatively friendly sales, property, estate, inheritance, and income tax rates. Let’s take a closer look at Texas.

 

Cheapest states to retire in: South Carolina

With no tax on Social Security retirement benefits, South Carolina also offers a $15,000 taxable income deduction for seniors receiving any other type of retirement income. Plus, unlike Texas where sales taxes are high, South Carolina has some of the lowest property taxes in the country.

 

Alabama, Arkansas, Delaware, Idaho, Illinois, Kentucky, Louisiana, Michigan, New Hampshire, Oklahoma, Pennsylvania, Tennessee, Virginia, Washington, and West Virginia all also fall in this category. 

 

Worst retirement-tax states

If you’re looking for the best retirement states to save the most amount of money, you’ll probably want to avoid California, Connecticut, Maine, Minnesota, Nebraska, Rhode Island, and Vermont. These states are considered the least tax-friendly states. Let’s take a look at the most famous one. 

Expensive states to retire in: California

California fully taxes income from retirement accounts and pensions. They also have some of the highest state income tax rates in the country, in addition to some of the highest sales taxes in the US. The good news is that Social Security retirement benefits are exempt, but it’s unlikely that you’d be able to afford to live in California on just your Social Security benefits alone. If you’re set on living out your golden years in California though, you might want to work hard at your retirement planning.

 

When deciding how to pick a state for retirement, considering tax-friendly states is a smart move. This can help you determine what your cost of senior living will be and set budgets for your future plans.

 

 

Contributed to The 55+ Society

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Published  5.6.22  

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