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Best States to Retire in for Taxes

Wyoming, South Dakota, and Mississippi rank among the strongest options for retirees focused on taxes because they combine zero state income tax with relatively low overall burdens on retirement income.

Nine states currently collect no individual income tax on wages, pensions, Social Security, or withdrawals from retirement accounts. These states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire ended its tax on interest and dividends at the start of 2025, completing the list. Retirees in these states avoid state-level taxation on typical income sources, though property and sales taxes still apply and can offset some savings.

No-Income-Tax States

States without income tax attract many retirees, yet total tax cost depends on housing and consumption. Texas and New Hampshire carry some of the higher property tax rates nationally, while Tennessee posts one of the higher combined state and local sales tax rates. A retiree owning a $500,000 home in Texas may pay roughly $8,000 annually in property taxes alone. Modeling the full picture of income, property, and sales taxes prevents surprises after a move.

States That Fully Exempt Retirement Distributions

Four additional states tax wages but exempt all retirement account and pension income. Illinois, Iowa, Mississippi, and Pennsylvania fall into this group. A retiree drawing solely from Social Security, pensions, and IRA distributions pays no state income tax in these states despite the presence of an income tax on other earnings. Pennsylvania exempts qualifying retirement income after age 59½ under its flat rate. These states offer planning flexibility for households whose income shifts entirely to retirement sources.

Social Security Taxation by State

Eight states still tax Social Security benefits in 2026: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. Most apply exemptions or phase-outs tied to income levels. Missouri, Kansas, Nebraska, and West Virginia recently removed their taxes on these benefits. Threshold effects matter; small changes in adjusted gross income near exemption limits can trigger additional state tax in the remaining eight states.

Property and Sales Tax Relief for Seniors

Property taxes vary sharply. Median annual bills range from under $1,000 in Alabama to more than $9,000 in New Jersey. Many states provide homestead exemptions, circuit breakers, or deferrals that reduce the load for qualifying seniors, often with income caps. Sales taxes also differ: Delaware, Montana, New Hampshire, and Oregon impose none at the state or local level, while combined rates exceed 9 percent in Louisiana and Tennessee. Retirees on fixed incomes feel these differences directly in everyday purchases.

Key Trade-offs When Choosing a State

Low or zero income tax does not guarantee the lowest total burden. High property taxes in some no-income-tax states can exceed the savings for homeowners. Healthcare access, climate, and cost of living also influence long-term suitability. Florida, Texas, and Arizona draw large numbers of retirees partly for tax reasons, yet insurance costs and housing markets vary. Personal circumstances such as homeownership status, expected spending patterns, and reliance on taxable retirement accounts determine which state delivers the clearest advantage.

Comparing specific income sources against each state’s rules produces the clearest picture. Sources such as state revenue departments and the Tax Foundation supply the underlying statutes and rate tables used for these comparisons.

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