Tax-friendly States for Retirees

Regarding ranking retirement-friendly states for taxes, we have a few things to look at to provide you with an in-depth understanding of the taxes in each state, such as:

Social Security and Income Tax

Most states across the United States don’t tax your Social Security income at all—and a select few don’t have a general income tax either. Other states may provide a specific deduction or an exemption for Social Security benefits. As you consider which states are tax-friendly for retirees, make sure to take a look at your anticipated forms of retirement income. Depending on what your financial situation is, some states may pose more or less of an added benefit.

Property Taxes

Owning a home as a senior can be one of the best ways to prepare for the future and avoid concerns about the housing or rental market. In some states, however, high property taxes can become frustrating, overwhelming, and discouraging. Some states offer homestead exemptions, which allow seniors to protect part of the home’s value from property taxes. While you consider what are the best tax-friendly states for retirees that want to own a home, take a close look at their property taxes and consider what’s feasible for you.

Sales Taxes

Sales taxes are something that we often forget about—we go to the store and buy something and notice a charge for a few cents or a few dollars. But for seniors living on a fixed income with less revenue coming in every week, sales tax can add up quickly. As you begin your search for the most tax-friendly state to retire, keep a close eye on the sales tax situation. Some states exempt groceries, medication, clothing, and fuel. Others tax nearly everything. Consider your financial situation and determine what’s the best fit for your retirement years.

Estate and Inheritance Taxes

Finally, estate and inheritance tax is particularly important to retirees. If you live in a state that enforces an estate tax, you will be required to pay taxes before your estate can be given to its inheritors. An inheritance tax impacts property that’s been passed on to your loved ones—so if your friends and family receive property in your passing, they’ll have to pay money in return.

In our review of which states are the most tax-friendly for retirees, we'll dig into each of these a little more and let you know what you can expect to see on your taxes if you live there.

Based on our research, these ten states are the most tax-friendly states for retirees. They tend to offer low taxes on the significant tax groups, making them an easy place to save money if you're looking for a great place to live without breaking the bank.

Alaska

• Income and Social Security Tax Range: None
• Median Property Tax Rate: Property taxes are the only significant local tax in Alaska. The average effective rate across the state is 1.18%, slightly higher than the U.S. average. However, seniors in many cities benefit from exemptions.
• Average Sales Tax Rate: There is no statewide sales tax, but cities and boroughs (like counties) can collect local sales tax. These rates average below 2%.
• Estate and Inheritances Taxes: None

When determining which states are most tax-friendly for retirees, Alaska is a winner in our book. Without any tax on income and Social Security benefits, you can keep most of the money you make in your pocket! Beyond that, the average sales tax rate is low—and varies by each city or county—when compared to most of the rates in the United States.

While Alaska has higher property taxes, they do not have an estate, inheritance, or gift tax. We're calling Alaska one of the best tax-friendly states for retirees for these reasons.

Florida

• Income and Social Security Tax Range: None
• Median Property Tax Rate: The state’s average property tax rate is 0.83%, just below the U.S. average of 1.07%.
• Average Sales Tax Rate: The statewide rate is 6%, and the average total rate, including local taxes, is 7.01%. Sales tax does not apply to groceries or medicine.
• Estate and Inheritances Taxes: Florida does not levy an estate or inheritance tax.

When you think of Florida, you probably think of sunny winter weather, palm trees, and plenty of outdoor adventures. But the year-round warm weather isn’t the only perk of choosing to retire in Florida. With limited taxes, Florida is certainly one of the most tax-friendly states for retirees. If you’re still in the workforce or even if you just have a part-time job on the side, you’ll be able to keep more of your income—and pass your estate to your family without paying extra money in taxes with property taxes and sales taxes.

Plus, groceries and medicines in Florida are exempt from sales tax, making it an easy place to save money. All and all, Florida is extremely tax-friendly for senior citizens as it boasts no state income tax—which means Social Security income, pension income, and income from an IRA or 401(k) all go untaxed. Intrigued? Us, too.

Georgia

• Income and Social Security Tax Range: Income is taxed but starting at age 62, you can deduct $35,000 a year. Once you hit 65, you can deduct $65,000 a year from any retirement income (such as an account or a pension).
• Median Property Tax Rate: The average effective property tax rate in Georgia is 0.87%. Additionally, several exemptions can help seniors in need of property tax relief.
• Average Sales Tax Rate: The Georgia statewide sales tax rate is 4%; Counties in Georgia collect their own sales taxes, with rates up to 4.9%. With both state and local rates, Georgia's average total sales tax rate is 7.33%.
• Estate and Inheritances Taxes: There is no estate or inheritance tax.

Affectionately known as “The Peach State,” Georgia is the country’s number one producer of peanuts, pecans, and the famous Vidalia onions. But a host of delicious snacks is not the only thing Georgia has to offer.

In addition to its diverse terrain—from coastal beaches to farmland and mountains—Georgia features a lower cost of living than most of the United States. There are some income taxes but once you hit 62, you’ll reach some sizable deductions. Plus, with a minimal property tax rate and no estate taxes, you can live out your golden years in one of the most tax-friendly states for retirees.

Kentucky

• Income and Social Security Tax Range: Kentucky does not tax Social Security income. Other forms of retirement income (pension income, 401(k), or IRA income) are exempt up to a total of $31,110 per person.
• Median Property Tax Rate: The average effective property tax rate in Kentucky is 0.83%.
• Average Sales Tax Rate: 6%
• Estate and Inheritances Taxes: There is no estate tax in Kentucky, however, there is an inheritance tax. How much you pay in inheritance tax will depend on your relationship to the deceased. (Exemptions apply if you are a direct relative, such as a spouse, parent, child, grandchild, brother, sister, half-brother, or half-sister.)

The Bluegrass State is home to rolling hills, plenty of horse farms, and some of the best whiskey that money can buy. Kentucky is also one of the most tax-friendly states for retirees because of the below-average property taxes, average sales tax, and lack of estate tax.

Although your income can be taxed, Social Security is exempt—and other forms of retirement income, such as pension income, 401(k), or IRA income, are exempt up to a total of $31,110 per person. One pro to Kentucky is that if you’re passing things on to your direct relatives, they won’t pay an inheritance tax.

Mississippi

• Income and Social Security Tax Range: Income sources exempt from state taxes include Social Security retirement benefits, pensions, 401(k)s, and IRAs.
• Median Property Tax Rate: Average effective property tax rates in Mississippi are quite low at 0.79%
• Average Sales Tax Rate: The state sales tax rate in Mississippi is 7%. There is an additional 1% tax in Jackson, the state capital.
• Estate and Inheritances Taxes: Mississippi has no estate or inheritance tax.

The birthplace of blues music, Mississippi is also one of the most tax-friendly states for retirees thanks to its lack of income and social security tax requirements. If you enjoy spending time in the south, Mississippi is a fantastic place to retire. Sales taxes are applied to groceries, however, prescription drugs are exempt from the sales tax in Mississippi.

Most forms of retirement income are exempt from state taxes, and there is no estate or inheritance tax. With minimal property taxes, this should be a state on your list to consider.

Nevada

• Income and Social Security Tax Range: Nevada does not have a state income tax and any income you receive during retirement will not be taxed at the state level.
• Median Property Tax Rate: The average property tax rate in Nevada is 0.53%.
• Average Sales Tax Rate: The average total sales tax rate is 8.23%, which is higher than the national average.
• Estate and Inheritances Taxes: Nevada has no estate or inheritance tax.

We are big fans of Nevada because it's one of the most friendly tax states for retirees. After all, the only tax that matters here is the sales tax. With no other high taxes, it's super feasible to live a fun and exciting life—hello, Vegas?—without breaking the bank. Your income won't incur taxes at the state level, and you can leave your estate to those you love the most without an inheritance tax.

New Hampshire

• Income and Social Security Tax Range: New Hampshire does not have a state income tax but some income types may still be subject to federal taxes.
• Median Property Tax Rate: The average effective property tax rate in New Hampshire is 2.05%. A senior who owns a home can expect to pay about $2,050 in annual property taxes for every $100,000 in home value.
• Average Sales Tax Rate: There are no sales taxes in New Hampshire.
• Estate and Inheritances Taxes: There is no estate tax or inheritance tax in New Hampshire.

New Hampshire is one of the best places for retirees to escape taxes—with no sales tax, no state income tax, and no tax on Social Security. Its property tax rate, however, is substantially higher than most of the U.S., and certainly the highest on this list. As you consider this state defined by its quaint towns and expansive wilderness, decide whether living in New Hampshire is worth the high property tax rates.

Pennsylvania

• Income and Social Security Tax Range: Pennsylvania exempts all forms of retirement income from taxation for residents 60 and older.
• Median Property Tax Rate: Pennsylvania's average property tax rate is 1.50%. Some of the highest rates in the state are in Allegheny County, which has an average effective property tax rate of 2.01%.
• Average Sales Tax Rate: The statewide sales tax rate is 6%. Some additional local taxes in Philadelphia County and Allegheny County also have a sales tax. However, Pennsylvania benefits from several exemptions on everyday products such as clothing, groceries, prescription drugs, and residential fuels.
• Estate and Inheritances Taxes: The inheritance tax rate varies depending on the inheritor's relationship to the deceased. The tax is 4.5% for direct descendants, such as children and grandchildren, 12% for siblings, and 15% for anyone else.

Pennsylvania is a wonderfully tax-friendly state for retirees. Why? Because once you turn sixty years old, all retirement income is exempt from taxes at the state level. And with a standard property tax rate, your cost of living won't be too bad. While there is a high sales tax rate, most necessities are not taxable—including food, clothes, medicines, and residential fuels.

One downfall of Pennsylvania is the inheritance tax. Depending on how you are related, you could pay a lot of money when someone passes.

South Dakota

• Income and Social Security Tax Range: South Dakota has no income tax whatsoever.
• Median Property Tax Rate: Property tax rates in South Dakota are higher than average. If you own a home in South Dakota, you can expect to pay around 1.22% of your home's value in annual property taxes.
• Average Sales Tax Rate: The statewide sales tax rate in South Dakota is 4.5%. Most major cities collect an additional rate of 2%. Medical services and prescription drugs are not taxed.
• Estate and Inheritances Taxes: There is no estate or inheritance tax.

Moving to the wilderness of South Dakota can be a great option if you’re looking for a tax-friendly state for retirees. The state doesn’t collect tax on some of your most significant expenses—and with no income tax, no estate tax, no inheritance tax, you are only paying moderate taxes on property and things you buy regularly, both of which are cheaper than average in the state of South Dakota.

Keep in mind that if you choose to move to South Dakota, federal taxes will still be required—and critical to consider. While many state taxes won't apply, you will have federal income taxes and estate taxes to pay.

Wyoming

• Income and Social Security Tax Range: Wyoming does not have an income tax.
• Median Property Tax Rate: The average effective property tax rate in Wyoming is 0.57%.
• Average Sales Tax Rate: The state and average local sales tax rate is 5.39%.
• Estate and Inheritances Taxes: Wyoming has no estate or inheritance tax.

If you’re wondering if Wyoming is one of the most tax-friendly states for retirees, you would be right! By living in this spacious state, you’ll only pay federally—with no income tax at the state level.

When it comes to property, you can't get much cheaper. With an average sales tax rate, you won't be spending too much at the store—so you can leave your family a nice nest egg without any estate or inheritance taxes.

While these states didn’t make our top 10 list, they are still fabulous places to retire if you’re looking for states that are tax-friendly for retirees.

Arkansas

• Income and Social Security Tax Range: Arkansas does not tax Social Security retirement benefits; however, other retirement income will collect taxes. Arkansas does offer seniors a deduction of $6,000 for other types of retirement income like pensions or an IRA.
• Median Property Tax Rate: The statewide average effective property tax rate is 0.61%.
• Average Sales Tax Rate: Arkansas has the third-highest sales tax rate in the entire country at 9.48%.
• Estate and Inheritances Taxes: Arkansas does not have an estate or inheritance tax.

Arkansas was a candidate for the list because it doesn't tax Social Security benefits and it offers low property taxes, making it an excellent state to call home for seniors without estate or inheritance taxes. However, it's home to substantial sales tax rates and a high capital gains tax—so it’s worth considering if Arkansas is the best option for your retirement goals.

Arizona

• Income and Social Security Tax Range: Social Security is not taxed, but other types of retirement income are taxed.
• Median Property Tax Rate: The average effective property tax rate is 0.62%.
• Average Sales Tax Rate: Arizona’s average state and local sales tax rate is 8.4%.
• Estate and Inheritances Taxes: None.

Arizona is home to a flourishing and beautiful desert—and plenty of wonderful activities to pass the time. For retirees looking for a tax-friendly state, Arizona doesn’t tax Social Security retirement benefits, however, other types of retirement income are taxed. One downfall is that distributions from retirement savings accounts, such as your 401(k) or IRAs, are taxed as regular income. Income from pension funds is eligible for a deduction.

Arizona also has a relatively high average and local state income tax at 8.4%. But with low property taxes and no estate or inheritance taxes, Arizona might be worth checking out.

Colorado

• Income and Social Security Tax Range: Colorado does tax some retirement income.
• Median Property Tax Rate: The average effective property tax rate in Colorado is 0.49%<./p>
• Average Sales Tax Rate: Colorado's statewide sales tax of 2.9% ranks as one of the lowest in the U.S. but local sales tax is relatively high, with an average rate of 7.72%
• Estate and Inheritances Taxes: Colorado does not have an estate tax or an inheritance tax.

Colorado is a moderately tax-friendly state for retirees. All retirees receive a deduction, and anything over that amount is taxed as ordinary income in the state. From the age of 55–64, you’ll receive a dedication of $20,000 per year. Once you turn 65, however, you’ll get up to $24,000 per year as a deduction.

Although the statewide sales tax rate is low, local state tax tends to be quite high with an average rate of over 7%. Two major perks are low property taxes and no estate or inheritance taxes.

Michigan

• Income and Social Security Tax Range: Social security benefits are not taxed, while most other income is.
• Median Property Tax Rate: The average property tax rate in Michigan is 1.45%.
• Average Sales Tax Rate: The state sales tax rate in Michigan is 6%, with no local sales tax in some places.
• Estate and Inheritances Taxes: Michigan does not have an estate tax or inheritance tax.

Michigan, a state in the Great Lakes, can be an affordable place to live during your retirement years if you don’t plan on bringing in a substantial income. While Social Security benefits aren’t taxed, other forms of income are. While property and sales taxes are relatively low, the lack of benefits for income tax can be a deterrent for some retirees.

Property taxes in Michigan can be even lower than 1%, depending on where you choose to live. If your dream retirement is a quiet town in northern Michigan, then look no further.

Tennessee

• Income and Social Security Tax Range: Tennessee does not have an income tax.
• Median Property Tax Rate: Tennessee's property taxes are quite low, with an average rate of 0.64%.
• Average Sales Tax Rate: Tennessee has one of the highest state and local sales taxes of any state, with an average overall rate of 9.55%.
• Estate and Inheritances Taxes: There is no inheritance or estate tax.

Home to the heart of country music, Tennessee is potentially a great place to retire if you can live with a high sales tax. Tennessee has one of the highest state and local sales tax rates in the entire United States, with an average overall rate of 9.55%.

If you’ve imagined retiring to the iconic region of Tennessee, then you’ll have to bear high sales tax—but no state income tax, low property taxes, and no estate or inheritance tax make Tennessee an enticing and tax-friendly place to retire.

While there are some great places to retire, some states make the list for the least tax-friendly states for retirees. You may want to avoid them as they will cost you.

Iowa

With a sliding scale for income tax, it can be tricky to nail down what you will have to pay if you decide to call Iowa home in your retirement. Iowa also has a relatively high sales tax rate at 6.94%, a 1.5% tax rate on property, and a significant inheritance tax.

New York

If you're looking at the Empire state as an option for a relaxing tax-friendly retirement, our advice is to keep looking. With some income taxes, high property taxes, sky-high sales taxes, and hefty estate taxes, you can't say you would be set up for long-term success here. The one pro? There’s no inheritance tax.

Kansas

Kansas is certainly one of the least tax-friendly states to choose for retirement. Although the state doesn’t require estate or inheritance taxes, everything else is fair game. You can expect to pay full income taxes on most forms of income. The only exceptions to state income tax are military, federal, and government pensions. On top of that, you will be paying a pretty penny with the sales tax—which is around 8.7%—and high property taxes in some areas as well.

Illinois

With small to moderate taxes on income, Illinois could appear to be an attractive place to retire. But with some of the nation’s highest property taxes and an 8.8% sales tax rate, it’s probably not the best option for a relaxing tax-friendly retirement. Plus, Illinois has an estate tax that applies to estates worth over $4 million—so this may not be the best place to live out your golden years.

New Jersey

Some people call New Jersey the least tax-friendly state for retirees—and here’s why. New Jersey has some of the most expensive property taxes you'll find. With a rate somewhere around 2.4%, you will be paying a lot towards your property. But beyond that, New Jersey has income taxes, an average sales tax rate of 6.6%, and you can expect to be charged anywhere from 11-16% on inherited property.

Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Everdays encourages individuals to seek advice from their own investment or tax advisor or legal counsel.