FYI: It’s never too late to begin investing. If you’re looking to get started, read our guide to safe investments for seniors.
These 11 States Won’t Tax Your Retirement Income
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February 7, 2023
If you’re planning to retire soon, then you hopefully have a financial strategy that involves a 401(k), traditional IRA, and/or pension; however, the government will tax these income sources, not to mention the number of states that will also tax Social Security benefits.
While there’s no avoiding federal income taxes on pensions and withdrawals from tax-deferred accounts, several states won’t tax these types of income, making them ideal places to retire for those unafraid of relocation.
In terms of taxes, these are the 11 best states to retire in.
FYI: It’s never too late to begin investing. If you’re looking to get started, read our guide to safe investments for seniors.
For decades, Florida has been one of the most popular states for retirees, and we can only assume that — in addition to the Sunshine State’s warm weather and beaches — its state taxes add to the appeal.
Florida won’t tax:
Florida also has no income taxes, estate taxes, inheritance taxes, or taxes on Social Security benefits. This state does, however, have a relatively high sales tax rate of 6%, which is often added to by local governments.
The rolling plains of South Dakota is the perfect place to stretch your legs, and the state offers a pretty favorable tax situation.
South Dakota has no income tax whatsoever, meaning the state won’t tax:
Social Security income, estates, and inheritances are also untaxed. Property taxes are on the higher side, though, and South Dakota imposes a state sales tax of 4.5%, with localities adding up to 4.5% on top of that.
Nevada may be known for its gambling, but the state’s complete lack of an income tax makes it a safe bet for retirement.
Nevada won’t tax:
This state also doesn’t have inheritance, estate, or Social Security benefit taxes, letting you access your funds without interference. There is, however, a 6.85% state sales tax, with additions by locality reaching up to 1.53%.
For those who don’t mind the cold, Alaska’s endless natural beauty and rich culture might be an unlikely paradise in which to retire, and this state is also pretty friendly when it comes to retirement income.
Alaska won’t tax:
Alaska also has no income tax, inheritance tax, estate tax, or tax on Social Security benefits.
The free frontier of Texas isn’t to be messed with, and the state, in turn, keeps its hands off of your money, with no income taxes at all.
Texas won’t tax:
Your retirement funds will be left alone, as will Social Security, inheritances, and estates. This is somewhat offset by the 6.25% sales tax, to which localities can add an additional 2%.
Illinois may seem a strange place to retire, but those who live in the Prairie State can take advantage of some tax benefits not shared by other Midwestern states.
Illinois won’t tax:
Illinois also won’t tax Social Security benefits or estates valued under $4 million. The income tax rate is relatively low at 4.95%; however, the median combined sales tax comes in at 8.81%, the eighth-highest in the nation.
Like the other states on this list, Mississippi won’t tax:
The caveat is that this tax exemption is available only to those ages 59.5 and older. Those younger than this will be subject to taxes on all non-tax-exempt retirement income.
Luckily, regardless of age, Mississippi has no estate or inheritance taxes.
Pro Tip: If you have a loved one retiring soon, be sure to check out our guide to gifts for retirees.
American liberty was born in Pennsylvania, and retirees can experience financial freedom in the state, which has limited taxes on retirement income.
Pennsylvania won’t tax:
Pennsylvania won’t tax Social Security benefits, and the state’s income tax is a flat 3.07%. There is, however, an inheritance tax of 4.5% to 15% that varies based on the recipient and the age of the deceased.
The Volunteer State imposes no income taxes of any kind, and this includes retirement income.
Tennessee won’t tax:
Not only are your 401(k), IRA, and pension exempt, Tennessee has no Social Security, inheritance, or estate taxes. Residents will, however, want to be aware that the average state and local sales tax in Tennessee is 9.55%.
If you like your trees evergreen and coffee strong, then you might consider retiring in Washington, which imposes no income taxes on residents of any age.
Washington won’t tax:
All your retirement funds will be yours to use, tax-free. While estates valued at at least $2.193 million are subject to a tax, inheritances are left alone. That said, the combined sales tax is the fourth-highest in the country, at 9.29%.
If you’ve ever dreamed of a home on the range, the Cowboy State may be calling you! This state has no personal income tax, meaning your retirement funds will be free for you to use.
Wyoming won’t tax:
In Wyoming, there are also no taxes on Social Security income, estates, and inheritances. For general sales, the state levies a 4% tax, with localities adding up to 2%. Overall though, Wyoming is one of the most tax-friendly for retirees.
As of 2022, 41 states (and the District of Columbia) have state income taxes, making it essential to plan out how these taxes fit into your retirement budget. If, however, you don’t mind moving, one of the states above can offer an affordable place to retire.
Did You Know: To learn more about retirement planning, read our guide: How Much Do I Need to Retire?
