As a retiree, you can give your savings and benefits a boost by living in a jurisdiction with low taxes.
The following states do not tax Social Security or pension income, so if you don’t already reside in one you may want to think about a change of address. Before moving, though, consider that these states have different property and sales tax rates.
We reviewed 2023 data from TaxRate.org, theTax Foundation and each state’s revenue department to identify low-tax places to retire.
America’s northernmost and largest state by area has a unique tax structure. There is no state income tax or sales tax. However, the state does need revenue to provide services and chooses to collect those funds in the form of high property taxes. The median property tax in Alaska is $2,422 per year for a home worth the median value of $232,900. Alaska residents also receive a unique financial perk: Those who have lived in the state for at least a year receive an annual payout from an oil wealth trust fund, which was $3,284 in 2022.
Most people know about Florida’s picturesque beaches and sunny winter weather. But a temperate climate isn’t the only perk of retirement in Florida. The state doesn’t levy an income tax, which means retirees who continue to work part time get to keep more of their earnings. You also don’t have to worry about paying state taxes on your Social Security or pension income. The 2023 median property tax in Florida is $1,773 per year for a home worth the median value of $182,400. The state sales tax rate is 7.02%, and there could be an additional local sales tax.
Many people dream of retirement on a tropical island. The cost of living in Hawaii can be high, but the state tax rates for retirees could help stretch your retirement budget if you are relocating from a higher-tax state. Hawaii doesn’t tax Social Security income or funds drawn from employer pensions or defined contribution retirement plans. The median property tax in Hawaii is $1,324 per year for a home worth the median value of $517,600. The state sales tax rate is 4%, and local sales tax rates are usually modest.
The state of Illinois has an income tax, but exempts many types of retirement income. Retiree residents are allowed to subtract their Social Security and pension income from their federal adjusted gross income, including income from employee defined benefit plans, IRAs, SEPs, government retirement plans and military retirement plans. However, retirees may still be taxed in other ways. Real estate taxes are high. The median property tax in Illinois is $3,507 per year for a home worth the median value of $202,200. Shoppers also pay a 6.25% state sales tax on many purchases, and there is often an additional sales tax at the local level.
Many types of retirement income are exempt from Mississippi’s state income tax. Social Security and pension payments, including public and private pension payments and withdrawals from IRAs and 401(k) plans, can be subtracted or excluded from state taxable income in Mississippi. The state’s property taxes are also generally low. The median property tax in Mississippi is $508 per year for a home worth the median value of $98,000. However, Mississippi retirees should watch out for the relatively high state sales tax rate of 7%.
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The casinos and nightlife could be what draws you to Nevada, but you might stay for the low tax rates. Nevada doesn’t have a state income tax, so you don’t have to worry about paying state level taxes on earnings from a part-time retirement job or your retirement income from Social Security or a pension. Property taxes are also generally low. The median property tax in Nevada is $1,749 per year for a home worth the median value of $207,600. However, the state sales tax rate is high at 6.85%.
Residents of New Hampshire don’t have to pay state income tax on Social Security benefits, pensions, distributions from retirement accounts or income earned from a retirement job. The only forms of income New Hampshire taxes are dividends and interest. There is no state sales tax, so retirees can shop freely without an extra tax burden. However, property taxes are among the highest in the country. The median property tax in New Hampshire is $4,636 per year for a home worth the median value of $249,700.
Social Security benefits are not included in taxable income in the state of Pennsylvania. Distributions from 401(k)s and similar types of workplace retirement accounts and IRA withdrawals taken after age 59 1/2 are also generally exempt from state income tax. But Pennsylvania retirees have to pay a 6% sales tax on their purchases. The median property tax in Pennsylvania is $2,223 per year for a home worth the median value of $164,700.
South Dakota is another state that doesn’t have an income tax. Retirees don’t need to pay a state tax on Social Security benefits, pension payments, retirement account withdrawals or income earned from a part-time job. However, South Dakota does levy property and sales taxes. The median property tax in South Dakota is $1,620 per year for a home worth the median value of $126,200. South Dakota’s state sales tax is among the country’s lowest at 4.2%, but there may be additional taxes at the local level.
The state of Tennessee doesn’t tax Social Security or pension income or earnings from a job. Dividends and interest are the only forms of income that are taxable in Tennessee, and taxpayers age 65 or older with low income are exempt. Property taxes are also low. The median property tax in Tennessee is $933 per year for a home worth the median value of $137,300. But watch out for the 7% sales tax while shopping.
There is no state income tax in Texas, which means retirees don’t have to worry about paying state taxes on Social Security income, pension payments, or 401(k) and IRA distributions. But the state raises revenue in other ways. Property tax bills can be significant in many parts of the state. The median property tax in Texas is $2,275 per year for a home worth the median value of $125,800. There’s also a 6.25% sales tax applied to many purchases.
No matter how much you bring in from Social Security, retirement account distributions, pensions or a retirement job, you don’t have to worry about a big state income tax bill in the Evergreen State because there is no state income tax in Washington. However, your property will be taxed. The median property tax in Washington is $2,631 per year for a home worth the median value of $287,200. There’s also a 6.5% sales tax added to many purchases.
Wyoming doesn’t levy an income tax. So there’s no state tax bill for any type of retirement or earned income. Retirees won’t encounter a large tax burden when making purchases either, because the state sales tax is a relatively low 4%. You also won’t pay high property taxes to own a home. The median property tax in Wyoming is $1,058 per year for a home worth the median value of $184,000.
Should You Move for Lower Taxes?
Reducing a tax burden can be very attractive when you are trying to make a fixed income go the farthest. Understanding which states offer financial incentives to retirees is important when you are thinking of relocating. Is it enough of a benefit to pull up roots and move elsewhere, however? Only you know.
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Update 08/30/23: This story was published at an earlier date and has been updated with new information.