Disclosure: This page may contain affiliate links. We earn a small commission at no extra cost to you. Not financial advice.
State income taxes can take a significant bite out of retirement income — Traditional IRA withdrawals, pension payments, and in some states even Social Security are all subject to state income tax. Nine states currently have no state income tax at all, and several others exempt retirement income specifically. For retirees drawing $60,000–$80,000/year from retirement accounts, the difference between living in a high-tax state (California at 9.3%, Oregon at 9.9%) versus a no-income-tax state can be $5,000–$7,000/year in after-tax income. Over a 20-year retirement, that's $100,000–$140,000.
| State | State Income Tax | Social Security Taxed? | Property Tax Rate (avg) | Overall Cost of Living |
|---|---|---|---|---|
| Florida | None | No | 0.86% | Above average |
| Texas | None | No | 1.60% | Below average |
| Nevada | None | No | 0.55% | Average |
| Washington | None (on income) | No | 0.98% | High |
| Wyoming | None | No | 0.57% | Below average |
| South Dakota | None | No | 1.08% | Below average |
| Alaska | None | No | 1.22% | High (remoteness costs) |
| Tennessee | None (was on dividends; now fully repealed) | No | 0.48% | Below average |
| New Hampshire | None on wages (interest/dividend tax being phased out) | No | 1.86% | Above average |
A state with no income tax isn't automatically cheap. States fund services somehow — usually through higher property taxes, sales taxes, or both. Texas has no income tax but property taxes average 1.60% of assessed value, one of the highest in the country. A $300,000 home in Texas costs approximately $4,800/year in property taxes. New Hampshire has no income tax but property taxes average 1.86% — among the highest nationally. Florida has no income tax, moderate property taxes, but above-average home prices and insurance costs that have surged due to weather risk.
Sales taxes also vary significantly: Tennessee has no income tax but the combined state + local sales tax rate averages 9.55% — the highest in the nation. Wyoming has no income tax and a 5.34% average sales tax. Nevada has no income tax and a 8.23% average sales tax. The total tax burden — income + property + sales — is the relevant metric for retirement planning, not just income tax isolation.
Federally, up to 85% of Social Security benefits may be taxable depending on combined income. At the state level, most states that have income taxes either exempt Social Security entirely or partially. A handful of states do tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont all include Social Security in taxable income to some degree. If Social Security will be a significant income source, verifying the state's treatment matters.
Florida remains the most popular retirement destination for a reason: no state income tax, no inheritance tax, reasonable property taxes in most inland areas, warm climate, and a large retiree community with corresponding healthcare infrastructure. The downsides are real: home insurance has become extremely expensive due to hurricane risk (some areas have seen premiums triple in recent years), and coastal areas have elevated home prices. Central Florida cities like Ocala, Gainesville, and Lakeland offer the tax benefits without coastal cost premiums.
Tennessee offers some of the best overall tax value for retirees: no income tax, the lowest property taxes among no-income-tax states at 0.48%, and well-below-average cost of living in most of the state. Cities like Chattanooga, Knoxville, and the smaller communities in middle Tennessee offer quality healthcare, four seasons, and costs significantly below national averages. The sales tax is high but retirees on fixed incomes spend a smaller percentage of income on taxable goods than working households.
Wyoming combines no income tax, low property taxes (0.57%), low sales tax, and a very low cost of living with some of the most spectacular scenery in the country. The tradeoffs are limited healthcare infrastructure outside Cheyenne and Casper, harsh winters, and geographic isolation. For retirees who are healthy, outdoors-oriented, and don't require proximity to major medical centers, Wyoming offers exceptional tax efficiency.
Nevada specifically Las Vegas and Henderson, has no income tax, moderate property taxes, and a mature retiree infrastructure. Summers are extremely hot. Healthcare access is adequate in the metro area. Cost of living is average to slightly above average depending on housing choices.
Some states have income taxes but specifically exempt retirement income — pension payments, IRA and 401(k) distributions, and Social Security. Illinois taxes ordinary income at 4.95% but fully exempts all retirement income including 401(k) and IRA distributions and Social Security. Pennsylvania has a 3.07% flat income tax but exempts all retirement income for residents over 59½. Mississippi taxes income at graduated rates but exempts retirement income. These states can be surprisingly competitive for retirees who will rely primarily on retirement account distributions.
The residency establishment matters: Moving to a no-income-tax state for retirement purposes requires genuine domicile establishment — a primary home, driver's license, voter registration, and spending the majority of the year there. Some high-tax states (California, New York) aggressively audit "residents" who claim to have moved but continue spending significant time in-state. Establish genuine residency; don't just maintain an address.
Use our retirement calculator to model how state taxes affect your annual income needs in different locations.
Use the Retirement Calculator →No-income-tax states offer real financial advantages for retirees drawing from Traditional IRAs, 401(k)s, and pensions — the savings can reach $5,000–$7,000/year on a moderate retirement income. But income tax is only one variable. Property taxes, sales taxes, healthcare costs, home insurance, and overall cost of living all matter equally or more in many cases. Tennessee and Wyoming offer the most comprehensive low-tax profiles for retirees. Florida and Nevada offer the best combination of climate, infrastructure, and tax efficiency. Evaluate the total tax burden — not just income tax — and factor in non-tax costs like healthcare access and insurance before committing to a retirement location.
For informational and educational purposes only. State tax laws change. Consult a tax professional before making retirement relocation decisions. Not financial advice.