Best States to Retire Tax-Wise: Income, Sales, and Property

The best states to retire in tax-wise are ones that skip state income tax entirely, leave Social Security alone, keep property and sales taxes reasonable, and don’t impose their own estate tax. Wyoming, Florida, Nevada, and South Dakota consistently land at the top of that list, and the gap between retiring there versus a high-tax state can easily amount to several thousand dollars a year on a typical $50,000 retirement income. Income tax is only one piece of the picture, though. Property taxes, sales taxes, estate taxes, and targeted exemptions for Social Security and pension income all shape the real cost of retiring in a given state, and the one that looks cheapest on paper doesn’t always turn out that way once you add everything up.

States With No Income Tax

Nine states charge no broad-based personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.¹ For retirees, that means distributions from 401(k) accounts, traditional IRAs, and private pensions hit your bank account without any state-level withholding. You also skip filing a state return.

New Hampshire used to be an asterisk on this list because it taxed interest and dividend income. That tax was fully repealed for taxable periods beginning after December 31, 2024, so New Hampshire residents now pay zero state-level tax on any form of personal income.¹

Washington deserves its own caveat. The state has no traditional income tax, but it imposes a 7% tax on long-term capital gains from the sale of stocks, bonds, and other investments. A standard deduction shelters the first $278,000 or so in gains, so this mostly hits large portfolio sales rather than ordinary retirement withdrawals. If you plan to sell a concentrated stock position or liquidate a business interest in retirement, though, Washington’s capital gains tax could take a meaningful bite.

Several of these states have structural protections against ever enacting an income tax. Tennessee’s constitution was amended in 2014 to permanently bar any tax on payroll or earned income. Wyoming and Florida have similar protections. That permanence matters when your plan stretches 25 or 30 years into the future.

Which States Tax Social Security Benefits

Most states leave Social Security alone. As of 2026, only eight tax benefits to any degree: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. West Virginia taxed benefits through 2025 but completed a phase-out, reaching a 100% exemption in 2026. Every other state with an income tax either fully exempts Social Security or has no income tax at all.

Even among those eight, most shelter lower-income retirees. Colorado fully exempts Social Security for anyone 65 or older, regardless of total income. Residents 55 to 64 pay nothing on Social Security if adjusted gross income stays below $75,000 for single filers or $95,000 for joint filers. New Mexico exempts single filers earning up to $100,000 and joint filers up to $150,000. Those thresholds mean many retirees in those states pay no state tax on benefits either.

Montana and Utah offer smaller relief. Montana provides a modest $5,500 subtraction from federal taxable income for residents 65 and older. Utah taxes Social Security at a flat 4.5% rate and offers a credit that phases out at moderate incomes. If Social Security makes up a large share of your retirement income, these eight states are the ones to look at closely before choosing a home.

Pension and Retirement Account Exemptions

Some states impose an income tax but carve out generous exemptions specifically for retirement income. Illinois stands out. It taxes wages and business income, but income from 401(k) plans, IRAs, and most qualified pension plans is completely exempt. Mississippi similarly exempts all qualified retirement plan income. Alabama exempts all defined-benefit pension income and the first $6,000 of 401(k) and IRA distributions for residents 65 and older. Pennsylvania exempts all retirement income from 401(k)s, IRAs, and pensions once the account holder reaches age 59½.

Georgia uses a graduated exclusion. Residents 62 to 64 can exclude up to $35,000 of retirement income from state tax, jumping to $65,000 at age 65. For a married couple both over 65, that’s $130,000 of retirement income sheltered, which covers the full income of most retirees.

Other states use a fixed-dollar deduction rather than a full exemption. Delaware allows taxpayers 60 and older to deduct up to $12,500 of retirement plan income. Connecticut is phasing in a full exemption for pension and annuity income for taxpayers with adjusted gross income below $75,000 (single) or $100,000 (joint), with 100% deductibility beginning in 2026.² These caps and thresholds change during legislative sessions, so verify your state’s current rules before filing.

Military Pensions

Military retirees have it easier than most. Beyond the nine states with no income tax, at least 28 additional states fully exempt military retirement pay from state income tax. That list runs from Arizona and Arkansas to New York and North Carolina. Military pension income is tax-free at the state level in roughly 37 states. Only a handful, most notably California and Virginia, still fully tax military retirement pay as ordinary income.

Sales Tax and Everyday Spending

Income tax gets the attention, but sales tax quietly erodes purchasing power every day. Five states impose no statewide sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon.³ Retiring in one of these means clothing, household goods, and most purchases come without a tax add-on. Alaska and New Hampshire are especially attractive because they also have no income tax.

At the other end, some states push combined state and local rates above 10%. Louisiana, Arkansas, Oklahoma, and Alabama all have combined rates that can reach 11% or higher depending on the municipality.³ On a $30,000 annual spending budget, that’s an extra $3,000 flowing out the door compared to a state with no sales tax. Tennessee, which often appears on best-states lists because of its zero income tax, has a combined rate that routinely exceeds 9%.

Groceries are where this hits hardest. Most states exempt grocery purchases from sales tax, but several still tax food at a reduced or full rate. Idaho taxes groceries at its full 6% rate. Mississippi charges 5%, and Tennessee and Hawaii each apply a 4% rate to grocery purchases. For a retiree spending $500 a month on groceries, even a 4% grocery tax adds up to $240 a year. Arkansas, Kansas, and Illinois recently eliminated their grocery taxes, so this is improving, but checking whether your prospective state taxes food is worth the two minutes it takes.

Property Tax Relief for Seniors

Property taxes are often the single largest local tax bill a homeowner faces, and they can rise unpredictably as home values climb. Most states offer at least one relief program aimed at older homeowners, though the generosity varies enormously.

Homestead Exemptions

Homestead exemptions reduce the assessed value of your primary residence for tax purposes, typically by a fixed dollar amount. If your home is assessed at $250,000 and your state offers a $50,000 senior homestead exemption, you pay taxes on $200,000. To qualify, you generally need to be at least 62 or 65, own and occupy the home as your primary residence, and file an application with the local tax assessor by the annual deadline. These exemptions are permanent as long as you keep living in the home, but you do have to apply.

Assessment Freezes

A property tax freeze locks your home’s assessed value at the level it was when you reached a qualifying age. Even if your neighborhood gentrifies and prices double, your tax bill stays anchored to the frozen assessment. This is the strongest protection for a retiree on a fixed income in a rapidly appreciating market. Several states offer freezes through either state law or local county programs, though most impose income limits to target the benefit toward people who genuinely need it.

Circuit Breaker Programs

Circuit breaker programs cap your property tax bill at a percentage of your household income. If the bill exceeds that threshold, the state reimburses the difference through a credit or direct refund. If a program caps property taxes at 5% of income and you earn $30,000, your maximum bill is $1,500, and anything above that comes back to you. These programs are the most effective safeguard against being pushed out of a long-held home when assessments outpace income growth.

Renters don’t benefit directly from homestead exemptions or assessment freezes, but some states offer a property tax credit for senior renters on the theory that a portion of rent covers the landlord’s property tax bill. Availability and generosity vary, and not every state extends the benefit, so renters should check their state’s program before assuming they’re left out.

Estate and Inheritance Taxes

If preserving wealth for heirs is part of the plan, residency matters. The federal estate tax exemption for 2026 is $15,000,000 per individual, meaning estates below that owe nothing at the federal level.⁴ That covers the vast majority of retirees. But 12 states and the District of Columbia impose their own estate taxes, often with much lower exemption thresholds.⁵

Oregon’s threshold is the lowest at just $1,000,000. Massachusetts follows at $2,000,000. Minnesota starts at $3,000,000, and Illinois at $4,000,000. Maine, New York, and Vermont set their thresholds between $5,000,000 and $7,160,000, while Connecticut’s threshold sits at $13,990,000, close to the federal level.⁵ An estate worth $2,500,000 would owe nothing in Florida but could face a state estate tax bill in Oregon or Massachusetts. For a retiree whose home equity, retirement accounts, and life insurance push their estate above $1,000,000, this distinction matters.

Inheritance taxes work differently. Five states levy them: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. These states tax the person who receives the inheritance rather than the estate before distribution. Rates run as high as 16% in Kentucky and New Jersey, though close relatives like spouses and children almost always qualify for lower rates or full exemptions. The real sting hits more distant relatives and unrelated beneficiaries, who face the top rates with minimal exemptions.⁵ Maryland is the only state that imposes both an estate tax and an inheritance tax, making it one of the most expensive states for wealth transfer.

The Trade-Offs Worth Watching

The zeroes are seductive. No income tax sounds like free money. But states that skip one tax often lean harder on another. Texas charges no income tax but has effective property tax rates around 1.36%, among the highest in the country. On a $300,000 home, that’s roughly $4,080 a year. New Hampshire’s effective property tax rate is even higher at about 1.41%. Compare that to Nevada at 0.49% or Tennessee at 0.49%, and you see how two no-income-tax states can feel very different in your monthly budget.

Tennessee’s trade-off comes through the register. Its combined sales tax rate routinely exceeds 9%, and groceries are taxed at 4%. A retiree spending $40,000 a year on taxable goods and food could easily pay $3,000 or more in sales tax, erasing part of the income tax savings. Alaska is the rare state that dodges both income and sales tax, though its cost of living and remote geography present their own challenges.

The workable approach is to model your actual spending. Take your expected retirement income, your likely home value, and your annual spending on taxable goods, then run the numbers for each state you’re considering. A state with a modest income tax but low property taxes, no sales tax on groceries, and a full Social Security exemption might cost you less overall than a zero-income-tax state with high property taxes and a 9% sales tax rate. The math depends entirely on your personal situation, and the retirees who get this right run the full calculation instead of chasing a single headline number.

1
Tax Foundation. State Individual Income Tax Rates and Brackets, 2025
2
Connecticut General Assembly. Income Tax Exemptions for Retirement Income
3
Tax Foundation. State and Local Sales Tax Rates, 2026
4
Internal Revenue Service. Whats New – Estate and Gift Tax
5
Tax Foundation. Estate and Inheritance Taxes by State, 2025