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Best and Worst States for Retirement: A Tax Analysis

2024-05-18

Educational content only. Rules and tax laws change over time; verify official sources.

Moving states could save you $10,000+ per year in retirement. We rank all 50 states by tax burden for retirees.

The Tax-Free States

No state income tax at all:

• Alaska - No income tax, no sales tax, but high cost of living
• Florida - No income tax, popular retiree destination
• Nevada - No income tax, no estate tax
• South Dakota - No income tax, low cost of living
• Texas - No income tax, but high property taxes
• Washington - No income tax, but 7% capital gains tax on high earners
• Wyoming - No income tax, low population

Best States for Retirees (Tax-Wise)

1. Florida: No income tax, no estate tax, reasonable property taxes
2. Nevada: No income tax, no estate tax, lower property taxes
3. Wyoming: No income tax, low sales tax, low property taxes
4. Tennessee: No income tax (eliminated in 2021)
5. South Dakota: No income tax, low sales tax

States That Don't Tax Retirement Income

These states have income tax but exempt retirement income:

• Illinois - Doesn't tax any retirement income
• Mississippi - Doesn't tax retirement income
• Pennsylvania - Doesn't tax 401k/IRA withdrawals

Worst States for Retirees (Tax-Wise)

1. California: Up to 13.3% income tax, taxes all retirement income
2. New York: Up to 10.9% income tax, high property taxes
3. New Jersey: High income tax, highest property taxes in nation
4. Connecticut: High income tax, estate tax, property taxes
5. Minnesota: High income tax, taxes Social Security

The Social Security Factor

12 states tax Social Security benefits:

• Colorado, Connecticut, Kansas, Minnesota, Missouri
• Montana, Nebraska, New Mexico, Rhode Island
• Utah, Vermont, West Virginia

If Social Security is a major income source, avoid these states.

Property Tax Consideration

Even tax-free states have property taxes. Annual property tax on $400k home:

• New Jersey: ~$10,000
• Texas: ~$8,000
• Florida: ~$4,000
• Colorado: ~$2,500

The Full Picture

Consider total tax burden: income + property + sales + estate taxes. A state with no income tax but high property taxes might not be better overall.

Plan Your Geographic Strategy

Use our calculator to model how different locations affect your retirement.

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