10 Most Tax-Friendly States for Retirees

Taxes on retirement in Texas

Texas comes in as the 10th most tax-friendly state for retirees. This is largely because the state has no income tax. So, not only will Texas not tax your retirement benefits, but the state won’t tax any other type of income, should you have any. 

And although property taxes in the state are high, with a median tax bill of $3,520, they are less than in some other states that don’t tax retirement income. It’s important to note that a property tax relief package, known as Proposition 4, may soon push Texas to a more favorable spot on this list.

Another positive to retiring to Texas is that there are no estate or inheritance taxes, so your heirs won’t be left with a hefty state tax bill.

Potential cons of retiring in Texas

• As stated, property taxes in Texas are currently on the high end, but since the property tax relief package is expected to become effective for the 2023 tax year, this con may soon disappear. 
• Sales taxes are also a bit high, with an average combined rate of 8.2%, according to the Tax Foundation.  
• Lastly, a new Texas electric vehicle tax could significantly increase registration costs for some Texans. 

Alaska is tax-friendly for retirees

The median property tax bill in Alaska is slightly lower than in Texas, at $3,454. While this number is still high when compared to most other states, the lack of state income tax in Alaska still places the state at number nine. 

Alaskans can even get paid for living in the state, thanks to the Alaska Permanent Fund Dividend. In 2022, the dividend amount was $3,284. That’s almost as much as the median property tax bill.

Also, Alaska won’t tax your loved ones once you’re gone, since there are no estate or inheritance taxes in Alaska.

 Potential cons of retiring in Alaska 

• Alaska doesn’t have a statewide sales tax, which is a  plus. But sales taxes easily make it on the cons list when considering local taxes, which can climb above 7%. 
• The sales tax rate isn’t so high compared to most states, but groceries are fair game. So, you may see a hike in your grocery bills if you retire in Alaska.

Tax rate for retirees in Pennsylvania

Pennsylvania makes the list of tax-friendly places for retirees because it doesn’t tax retirement benefits. And even if you do have taxable income (such as wages), the Commonwealth has a flat tax rate of 3.07%, which is less than in most states that impose an income tax. 

And although the median property tax bill in Pennsylvania exceeds $3,000, property taxes are still lower than in five of the states that won’t touch your retirement benefits. 

Potential cons of retiring in Pennsylvania

• Although some residents can take advantage of Pennsylvania rebates for property taxes paid, limitations apply.
• You may also want to consider how not tax-friendly Pennsylvania is for your heirs. If you plan to leave your loved ones an inheritance, they could face a big tax bill due to death taxes in the Commonwealth. 

Iowa no longer taxes retirement income

Median property tax bills finally fall below $3,000 in Iowa, the seventh most tax-friendly state to retire to. Between slightly more reasonable property taxes and no state tax on traditional retirement benefits, Iowa could be an affordable place to live out your retirement. 

And while the state does tax other types of income, tax brackets max out at 6%, and the state will move to a flat 3.9% income tax rate in 2026.

Potential cons of retiring in Iowa

• Iowa currently has an inheritance tax, which can mean taxes for your loved ones. 
• But that drawback is expected to go away soon since the state is set to completely eliminate the inheritance tax in 2025. 

South Dakota is a tax-friendly state for retirees

South Dakota’s lack of income tax is appealing, especially if you have non-traditional forms of retirement income, such as income from investments. 

At $2,331, the median property tax bill is still on the high end but is lower than in several other states that don’t impose an income tax.

South Dakota may also be a good choice for retirees who don’t want to leave their family members with a tax bill. There are no estate or inheritance taxes in the state.

Potential cons of retiring in South Dakota

• South Dakota is one of the states that still tax groceries. 
• The state recently reduced its grocery tax rate by 0.3%, from 4.5% to 4.2%. And that "grocery tax holiday" is set to expire in four years. 

Pros and cons of retiring in Florida

Florida is a popular retirement destination, but warm weather isn't the only reason people retire in Florida. There are no state income taxes in the Sunshine State, which means you can continue working, receive your retirement benefits, and enjoy your dividends, all without worrying about the state taking a cut. 

At $2,143, median property taxes aren’t too high compared with other states. Additionally, some Floridians are eligible for a homestead exemption up to the entire taxable value of their property. However, homeowners must meet certain criteria, including (but not limited to) having lived at the property for at least 25 years.

Florida doesn’t have estate or inheritance taxes, so your loved ones won’t need to share a chunk of their inheritance with the state.

Potential cons of retiring in Florida

• As far as taxes are concerned, the tax on gasoline is a drawback of retiring to Florida. 
• At 35.2 cents per gallon (including state excise taxes and fees), the gas tax in Florida is higher than in most other states.

Retiring in Nevada

Las Vegas often comes to mind for many people when they think of Nevada, but the state has more to offer than famous casinos and entertainment. For starters, there is no state income tax in Nevada. That means all your income is safe from state taxes, rather than only your retirement benefits.

The median property tax bill in Nevada is lower than in many other states, at $1,736. And with an average effective tax rate of 0.55%, even homeowners with high property valuations may see low tax bills.

There are no estate or inheritance taxes in Nevada, which makes it a very tax-friendly place for the loved ones you’ll leave behind one day.

Potential cons of retiring in Nevada

• While Nevada doesn’t quite make the cut for having one of the top 10 highest sales taxes in the country, the sales tax rate is still high. 
• The averaged combined state and local sales tax rate is 8.23% in Nevada, but it’s important to note that you won’t pay this tax on groceries or prescription medications.

Benefits of retiring in Wyoming

Wyoming is another retirement destination without an income tax, so that already makes it a tax-friendly state for retirees. And with a median property tax bill below $1,500, Wyoming is even more affordable, at least where taxes are concerned.

If you’re looking for another tax benefit to choosing Wyoming as your retirement destination, you’re in luck. There are no estate or inheritance taxes in the state, so your heirs won’t inherit a state tax bill.

Potential cons of retiring in Wyoming

• Although gas taxes in Wyoming are reasonable when compared to most other states, Wyoming’s EV tax is not. 
• If you drive an electric vehicle, prepare yourself for an annual ‘decal fee’ of $200. 

Advantages of living in Tennessee

Yet another state with no income tax, Tennessee comes in as the second most tax-friendly state to live out your retirement. And the fact that Tennessee ranks as imposing some of the lowest property tax bills in the country may make the state even more appealing.

Another tax benefit to living in Tennessee is the lack of estate and inheritance taxes. So, even if you have a sizable estate, your heirs won’t have to share it with the state.

Potential cons of retiring in Tennessee

• Tennessee has a high statewide sales tax rate of 7%, and localities can impose separate sales taxes of their own. 
• Additionally, the state taxes groceries. And though the grocery tax is reduced to 4%, it’s still not ideal. 
• However, the grocery tax is not an issue through October 2023, during Tennessee’s tax-free grocery tax holiday.

Mississippi tax breaks for retirees

Of all the states that won’t take a cut of traditional retirement income, Mississippi has the lowest property taxes, with a median tax bill of $1,052. So, Mississippi earns its place as the most tax-friendly U.S. state for retirees.

You won’t pass on a big state tax bill to your loved ones when you’re gone, either. Like most other states on this list, there are no estate or inheritance taxes in Mississippi.

Potential cons of retiring in Mississippi

• Mississippi isn’t perfect where taxes are concerned since the state still taxes groceries.
• The state taxes groceries at a higher rate than any other in the country, at 7%. This is because of all the states with a grocery tax, Mississippi is the only one that doesn’t offer a reduced rate.

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