It’s been said that only two things in life are certain: Death and taxes. So, when choosing where to retire in the U.S., state taxes may come to mind.
While some states have no income taxes, they may have high tax rates in other areas, like sales tax, for example. Knowing a state’s tax landscape (and not just its taxes on retirement income) might give you a better sense of where to save on taxes as a retiree.
And there’s one state that might fit the bill for a “tax-friendly” retirement. Here it is.
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The most tax-friendly state for retirement
To determine the “most tax-friendly state for retirees,” Kiplinger first ranked each state based on two key factors.
First, only states that don’t tax retirement benefits were chosen. Of those 13 states, the one with the lowest median property taxes paid was selected. Property tax bills were based on the most recent 5-year estimate available from the U.S. Census Bureau.
Note: No matter where you move, federal income taxes still apply.
Best state for retirement taxes
Mississippi.
Many forms of retirement income are exempt from Mississippi taxes, making it the most tax-friendly state for retirement.
A few examples of tax-exempt income in the Hospitality State include:
- Social Security benefits.
- Pensions (private and governmental).
- Distributions from retirement accounts, like 401(k)s, 403(b)s, and individual retirement accounts (IRAs). This includes both traditional and Roth.
- Military retirement pay.
Note: Early or excess withdrawals from retirement accounts may still be taxable.
If you receive other types of income, you’ll still pay a flat income tax of 4.4% over $10,000. But that’ll soon change.
Mississippi’s income tax rate is due for a reduction in 2026 to just 4%.
Plus, Mississippi has no estate or inheritance tax, meaning you could pass on more wealth to your heirs.
When you combine that with the state’s overall low median property tax bill of just $1,189 (compared to the national average), you can see how Mississippi earned its ranking as the most tax-friendly U.S. state for retirement.
And there may be one more special tax rule that sweetens the pot.
At what age do you stop paying property taxes in Mississippi?
You may stop paying property taxes in Mississippi at a certain age. How? Well, that depends on your property’s value. Mississippi has a homestead exemption if you meet certain eligibility requirements:
- You must be a homeowner who is 65 and older (or totally disabled).
- You must own and occupy your property as a primary residence.
- You must be a resident of Mississippi.
- You must have submitted an application for exemption to your county tax assessor’s office between January 1st and April 1st.
The total benefit of the Mississippi “senior homestead exemption” is $7,500 of assessed value. This means if your property has a value of $75,000 or less, you may be completely exempt from paying property taxes.
However, like all states, there may be a few tax drawbacks to retiring in Mississippi.
Let’s explore a few.
Mississippi retirement tax cons
Although Mississippi has some low taxes compared to other states, there are a few areas where the Hospitality State may be less tax-friendly for retirees. For instance:
- The sales tax rate in Mississippi is 7%, which can be high depending on where you live now. Yet Mississippi still isn’t one of the ten states with the highest sales taxes.
- Mississippi is also a state that taxes groceries. However, as of July of this year, the rate dropped from 7% to 5%.
Despite potentially higher sales taxes on food and other essentials, Mississippi is one of the states with the lowest gas taxes.
So, if you enjoy going for a Sunday drive, you may take advantage of the state’s gas tax rate.
Is Mississippi a good state to retire in?
Of course, before you’re ready for retirement in Mississippi, there are other important factors to consider.
While Kiplinger’s ranking considered state tax burdens, you may want to research other key considerations, like cost of living, political climate, and crime rates, before deciding to move.
- For instance, Mississippi has mild winters and hot summers, which may be idyllic for some retirees. But the state also experiences about 30 to 100 tornadoes per year, plus other natural disasters, due to its location along the Gulf Coast.
- The cost of daily essentials, including internet and energy bills, is reportedly generally low in Mississippi compared to the national average.
- Though at the same time, receiving healthcare in Mississippi could be challenging. The state consistently ranks low in national rankings that compare healthcare access, quality, and outcomes.
Overall, it’s important to consider your unique financial and lifestyle needs if considering a move in retirement.
Even though Mississippi is the most tax-friendly state for retiring, it may (or may not be) the most retirement-friendly state for you.
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