Here's a Look at the Most Tax-Friendly States for Retirees in America

10 most tax friendly states for retirees

While Uncle Sam plays a part in your retirement, he isn’t the only tax man. All 50 states are also partners to some extent.

Many state governments depend on income taxes for public revenues, and in some, city governments take a piece of the income tax pie as well. And what about the states that don’t have an income tax? They rely on other revenues, like gas, property, and sales tax collections.

If you are among the growing numbers of Americans who wish to retire elsewhere than your current community, take note. Many variables play into people’s choice of retirement relocation: the cost of living, unemployment rate, work possibilities, social opportunities, and closeness to people and causes that you hold dear.

However, they aren’t the only factors, as taxes can take a bite out of retirement income. It’s important to see how your tax situation might affect your bottom-line in any places you may be considering. 

Every year, Kiplinger publishes an updated, annual guide to state taxes. Their findings show how state and local government taxes are “all over the map” – and how living in different states can be a difference of thousands of dollars in income, depending on your retirement tax situation.

Just as importantly, the guide includes an analysis of each state’s “tax friendliness” for retirees. Those judgments are based, in large part, on taxability of Social Security payments, exemptions for other retirement income, and property tax rates.    

Here’s a look at the top 10 most tax-friendly states for retirees in the U.S., as ranked by Kiplinger.

The 10 Most Tax-Friendly States for Retirees

Without further ado:

10. Georgia

300px Midtown HDR Atlanta

Midtown, Downtown Atlanta, GA. Photo courtesy of Wikipedia. Creative commons photo source.

Apart from being a top location for filming movie productions, Georgia is a top retirement tax haven, it turns out. Its low-tax environment is attractive for a number of reasons, according to Kiplinger.

Retirees have their Social Security benefits exempt from state taxes. Not only that, if you are 62 to 64 years old, up to $35,000 of qualifying retirement income is also exempt. Under Georgia law, that spans most kinds of retirement income. Those qualifying income types include:

  • Pension as well as annuity payouts,
  • Capital gains,
  • Interest earnings,
  • Dividends,
  • Rental property income, and
  • The initial $4,000 of earned income like employment wages

Should you be 65 or over, the exemption amount per taxpayer goes up to the $65,000-mark. Couples have a state tax exemption for qualifying income of up to $130,000. Some exceptions for certain types of income exist, such as military pension payouts.

Georgia holds an average state and local sales tax of 7.23%, as well as low income tax rates. At present, a 1% income tax rate is levied on the first $750 net taxable income for single filers (or first $1,000 for joint tax filers).

From there, a 6% tax rate is incurred at taxable income of $7,000 for single filers. As for joint filers, the 6% rate is applied at a taxable income level of $10,000.

According to Kiplinger, the median property tax on the state’s median property value of $152,000 is $1,413. Some property tax relief measures do exist for seniors.

9. Kentucky

300px Louisville skyline night

Skyline of Louisville, KY. Photo courtesy of Wikipedia. Creative commons photo source.

As with other states on this list, Kentucky exempts Social Security benefits from state taxes. What’s more, up to $31,100 of retirement income is also exempt, so long as the income sources qualify under Bluegrass State law.

Distributions from 401(k)s and IRAs, private pensions, and annuities are among the kinds of income that are excluded. Qualified military, civil service, and state as well as local government pensions also may be exempt.

When it comes to income tax rates, Kentucky has a flat rate of 5%. Some localities have income tax collections of their own. The average state and local sales tax is 6%.

As for property taxes, the median property tax on a median residential property value of $126,000 is $1,078, Kiplinger reports. Kentucky also provides a homestead exemption for qualifying single-unit residential property.

8. New Hampshire

300px Manchester NH 18

Downtown Manchester, NH. Photo courtesy of Wikipedia. Creative commons photo source.

According to Kiplinger, retiree tax treatment is rock-solid in the Granite State. New Hampshire residents don’t have taxes on their Social Security benefits, pension payouts, or distributions from their retirement plans.

Having no sales tax helps as well. The Granite State does levy a 5% tax on dividend interest. For folks age 65 and up, a $1,200 exemption might be able to be applied.

The flip-side of this tax treatment is a higher reliance on revenues from property taxes. In New Hampshire, the median property tax on the state’s median home value of $239,700 is $5,241.

Kiplinger claims that this is the third-highest property tax rate in the United States. High-income households may face a higher federal tax bill since exemptions for state and local taxes have been capped at $10,000.

7. Nevada

300px Las Vegas Strip lights at night

Nightview, Las Vegas strip, NV. Photo courtesy of Wikipedia. Creative commons photo source.

What does the Silver State offer retirees in terms of tax obligations? Quite a bit. There is no state income tax in Nevada, which offers considerable benefits for income and tax planning at the state level.

While the average state and local sales tax is 8.14%, groceries are excluded from state sales tax collections.

On the other hand, property taxes are a considerable revenue generator. The median property tax in Nevada on the state’s median home value of $191,600 is $1,478. Nor are there any property tax breaks for seniors, either.

6. Pennsylvania

302px pittsburgh pa

Night cityview, Pittsburgh, PA. Photo courtesy of ownership. All rights reserved.

Yes, the Keystone State does have an income tax rate of 3.07%. But there is good news for retirees. Pennsylvania excludes most kinds of retirement income from state taxes.

Social Security payments, public as well as private pension payouts, and distributions from 401(k)s as well as IRAs are treated as tax-free. Some localities do have high income taxes, but those tax bills generally apply to earned income. Those who have completely retired from the workforce won’t face those tax obligations.

The average state and local sales tax is 6.34%. Meanwhile, clothing as well as non-prescription medications are excluded from sales tax collections. However, property taxes tend to be high in the Keystone State. The median property tax on the state’s median home value of $167,700 is $2,603. According to Kiplinger, that is the thirteenth-highest rate in the nation.

5. Florida

300px Fort Lauderdale Florida photo D Ramey Logan

Fort Lauderdale, FL. Photo courtesy of Wikipedia. Creative commons photo source.

The Sunshine State has long been a hotspot for retirees. Aside from the warm climate, the appeal of a low-tax environment may be another draw-in.

Florida has no income tax, but it does collect sales taxes. While sales taxes in some parts are as high as 8%, the average state and local sales tax is 6.80%.

And what about property taxes? The median property tax on the state’s median home value of $166,800 is $1,702. So long as they meet certain requirements, including certain income limits, Florida retirees who are 65 and up may have homestead exemptions available to them. If someone is a widow or widower in Florida, they may be able to claim an additional $500 exemption.

4. Mississippi

300px Views of the I 10 Mississippi River Bridge

Mississippi River Bridge, MS. Photo courtesy of Wikipedia. Creative commons photo source.

The Magnolia State offers many tax breaks to retirees. Not only are Social Security payments excluded from state income taxes. So are withdrawals from IRAs and 401(k)s, income payouts from public and private pensions, and other kinds of qualified retirement income (i.e., income from pre-tax sources).  

That being said, Mississippi imposes a 3% tax on taxable income of $1,000 or more. And it levies a 5% tax on taxable income of $10,000 or more. More good news, though. The Magnolia State is giving more tax breaks for retirement income in the coming years. In 2019, the first $1,000 of taxable income will be exempt from the 3% tax rate. By 2022, the first $5,000 of taxable income will also be exempt.

Unlike many other states, Mississippi does have a high state sales tax at 7% – the second-highest in the nation – and the sales tax does apply to groceries. However, home utilities, motor fuel, and newspapers are exempt. The average state and local sales tax is 7.07%, meaning local sales taxes add little to the cumulative rate.

Vehicles sales are taxed, not to mention a personal property tax levied on a vehicle’s age and value. As for property taxes, Mississippi is well below the national average. Its median property tax on the state’s median home value of $105,700 is $841.

3. South Dakota

300px Mount Rushmore National Memorial

Mount Rushmore, SD. Photo courtesy of Wikipedia. Creative commons photo source.

The Mount Rushmore State has no state income tax. Not only that, sales taxes are generally low. The average state and local sales tax is 6.4%, but the trade-off is very few items are exempted.

Groceries and non-prescription medications are taxed. So are many services. Thanks to recent case law in the Supreme Court, South Dakota residents will also pay sales taxes on more of their online purchases. Kiplinger reports that the state began its collections of sales taxes from out-of-state online retailers in November 2018.

South Dakota also depends on revenues from property taxes. The median property tax for the state’s median home value of $146,700 is $1,943 – the sixteenth-highest rate in the country.

2. Wyoming

300px Jackson from snowking

Jackson, WY. Photo courtesy of Wikipedia. Creative commons photo source.

Thanks to substantial revenues from state taxes on oil and mineral rights, Wyoming offers a very tax-friendly environment. Residents of the Equality State have no income tax, meaning their Social Security benefits as well as other income gets a free ride.

Sales taxes are also low. The average state and local sales tax is 5.39%. And Wyoming residents don’t shoulder high property taxes, either. The median property tax on the state’s median home value of $199,900 is $1,233 – the 9th lowest rate in the U.S.

Seniors who meet certain income requirements may be able to claim a refund of up to $900 ($800 for single filers) on property taxes, utilities, and sales and/or use taxes.

1. Alaska

300px Downtown Fairbanks Alaska

Fairbanks, AL. Photo courtesy of Wikipedia. Creative commons photo source.

According to Kiplinger, The Last Frontier offers one of the best tax havens for retirees in all 50 states. And why is that? Alaska residents don’t have any state income tax or state sales tax. Some localities impose sales taxes, but two of the state’s biggest cities, Fairbanks and Anchorage, don’t.

Property taxes are higher than in other states. The median property tax on the state’s median home value of $257,100 is $3,048. However, homeowners who are 65 or older may have an exemption from municipal taxes on the first $150,000 of their assessed property value.

Alaskans also benefit from dividend checks from the state’s wealth savings account. All permanent state residents, defined as folks who have lived in Alaska for one year or greater, receive annual checks from Alaska’s oil revenues. In 2018, the state gave each resident a check for $1,600.     

Preparing for a Financially Confident Retirement

While a state tax environment has a bearing on your retirement, of course it’s not the only thing that matters.

As you decide upon your retirement lifestyle goals, having a set financial plan can go a long way in moving them from dreams to reality. A retirement strategy can encompass many elements: income, taxes, investments, protection, legacy, and insurance to name a few.

Need Guidance Through Your Retirement "What Ifs?"

If you haven’t had your current financial plan reviewed for your retirement financial goals – or possibly had any adjustments made to align with your new stage of life – now may be a time to get started.

An area of great importance in retirement is income planning. It’s the process of creating a plan to ensure you will have the income and cash-flow you need for a long-term, comfortable retired lifestyle.

If your existing income strategy could use a second opinion – or you would like to review your progress toward your goals and any other potential steps – financial professionals at may be able to assist you with your “what ifs.”

Use our “Find a Financial Professional” section to locate someone and connect with them directly. Should you need a personal referral, call us at 877.476.9723.  

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