Most Tax Friendly States for Retirement – 2023
Category: Best Retirement Towns and States
Dec. 7, 2022 — For the people who see red when they think about paying taxes, the good news is that there are plenty of tax friendly states to retire in. There are enough choices that they can pick a state for retirement based on other factors as well, such as climate, environment, proximity of family, etc. This article will cover the states that have the lowest taxes for retirees. But first, let’s discuss what kind of taxes you need to consider in retirement.
Kinds of Taxes
Unfortunately, there are multiple kinds of state taxes that can affect retirees. Some will affect different people in different ways:
- Income Taxes. All 9 of the states that have no income tax are included on our list of most tax friendly states.
- Property Taxes. If you own an expensive home in certain states you can pay a lot of property taxes. Illinois, New Jersey, and New Hampshire have some of the highest property taxes, while Hawaii, Alabama, and Colorado have the lowest. A drawback to property taxes is that you have to pay taxes on the property, even if you have no income.
- Estate and Inheritance Taxes. If you have a large estate and this is important to you, don’t become a resident of one of the 11 states that have an estate tax. Six states have an inheritance tax, but since this is what your heirs pay, it affects them where they live, not you. Maryland is the one state that has both an estate and an inheritance tax.
- Sales Taxes. Delaware, Montana, New Hampshire, and Oregon levy no statewide sales tax. But for most people, unless they buy a lot of expensive items like cars and boats, sales tax is not a deal-breaker.
Exemptions and other factors like tax brackets can make one state more attractive to retirees than another
Here is where things get complicated. There are a host of different exemptions that states can use to try to make their state more attractive. Those exemptions include: standard/personal, property tax based on income, military and/or state pensions, veterans, etc., homestead exemptions, etc. Some states have very progressive tax brackets that are kind to lower income brackets, while others put a fairly high tax rate even on very modest incomes (California’s highest rate starts at $1 million, while GA’s kicks in at $7000). If taxes are important to you, running a test state income tax return might be a good idea.
Most Tax-Friendly States for Retirement
Florida. No income or estate tax. Amendment 10, the Save our Homes Act, is a top notch program that protects homeowners from big property tax increases. The Sunshine State has a warm winter climate, extremely long coast line, and an endless list of towns where retirees can find things to do and communities to welcome them.
Nevada. No income tax or estate tax. In Las Vegas and Reno there is plenty to do along with hundreds of active adult and 55+ communities. Winters are warm and outdoor recreation and scenery in the mountains is excellent.
South Dakota. No income tax or estate tax. Winters aren’t so great here, but there is a strong economy and many attractive places to live.
Wyoming. No income tax, and no estate or inheritance taxes. Its strong economy and great recreation in the Rocky Mountains and National Parks are big plusses.
Alaska. This gigantic state not only has no income tax, but its Permanent Fund will pay you $1100 a year to live here. Which you will need since it is very expensive to live in this cold and distant land.
Tennessee. The State tries a lot harder than almost any state to bring retirees to this friendly state. Although the State used to tax unearned income like dividends and interest, TN no longer has any kind of income tax. There is no estate or inheritance tax. The Retire Tennessee program promotes TN as an ideal place for retirees to call home.
Texas. The Lone Star State has no state income tax, making it very attractive to higher earning retirees. Many people complain about high property taxes here. Texas is one of the few states with a Certified Retirement Community program, which aims to make towns in the state more attractive to retirees.
Washington. The State has no income tax, although there is an estate tax. Real estate prices in the western part of the State are very high, but retirees can enjoy a wonderful lifestyle in this varied state.
New Hampshire. A relatively tax friendly state. At 7.9%, it ranks 7th lowest for tax burden. There is no earned income tax or sales tax, and a 5% tax on interest and dividends.
And the 10th state is…..
Georgia. The Peach State does have an income tax, but offers a very generous $65,000 per person exclusion of retirement income for people over 65. Retirees with considerable amounts of earned income or very large retirement income will find this less to their advantages. Winters are pretty warm here.
There are several other states that are considered tax friendly, depending
In the end we added Georgia to this list of tax friendly retirement states, mainly because of its retirement income exclusion. But many other states would be contenders for the spot. Both the Carolinas, Pennsylvania, and many southern states with their low property taxes might be tax friendly to your situation. Remember, there are so many different types of exclusions and deductions (in state pensions vs. out of state, military vs. government, disabled, etc., that everyone needs to check their own situation out carefully.
For further reading:
Finding Your Most Tax Friendly State for Retirement – Part 1
Comments on "Most Tax Friendly States for Retirement – 2023"
Larry says:
Apologies in advance for the length of this response…
The above article about state-by-state taxation is timely for me. I am putting the finishing touches on an article about Florida for my newsletter, Home On The Course, in which I consider that Florida’s zero-state-income tax may not be enough of a lure for many retirees to move there.
By their very nature, articles about taxes by state are misleading. Saving money, especially for retirees, is important, but other issues, such as healthcare, are even more important. The environment, climate, infrastructure, even traffic should be considered as well. Many media sources disagree significantly about which states are best on taxation and the more relevant measure of overall cost of living. For example, the article above cites Florida as the paragon of low taxation. But the World Population Review, an online source for state-by-state information, indicates that Florida ranks 27th in the nation in terms of cost of living, right between Montana and Minnesota. (If you have a high post-retirement income, a zero-state-income tax is important, but for the rest of us, overall cost of living should be the guiding principle.) Other rating services rank Florida between 10th and 20th in affordability.
Therefore, for most people, Florida is not a particular bargain; and for all its citizens' geriatric health needs, the Sunshine State doesn't have a single hospital ranked in the top 20 nationally, according to USNews&WorldReport's 2022/23 rankings. Not surprisingly, most top-ranked hospitals nationwide are located in urban areas in the northern tier of the nation. The first southern hospital on the list is #15 ranked Houston Methodist. The article above cites South Dakota, Wyoming and Alaska as cheap places to live, but try finding a high-quality hospital if you need one.
Florida and other states with significant coastlines are facing disastrous flooding scenarios in the coming few decades. Hurricanes Ian and Nicole demonstrated that rising sea waters are not to be trifled with. The east coast hamlet of Wilbur By The Sea was swept away by Nicole whose 85 mph winds were relatively modest but whose storm surge was devastating. Every decade for the last 100 years, the Atlantic Ocean has risen by an inch. That may not seem like much, but the ocean is 41 million square miles in size. An inch here and an inch there and pretty soon...well, you know the rest.
Florida infrastructure has not kept up with the inbound migration over the last few decades. In the high season, state residents complain a lot about traffic jams. Three of the top 25 most congested roads in America are in Florida, according to the analytics company Inrix. Traffic per day on I-75 near Sarasota increased from 18,000 to 116,000 in the five years ending in 2019. (Note: Car insurance rates in Florida are three to four times the average nationwide.)
Speaking of infrastructure, recall the collapse of the Surfside building a couple of years ago. In recent weeks, Top Retirements reported on the new condominium law in Florida that will compel Homeowner Associations to ensure their reserves can cover potential damages to their structures. For residents of the state’s condos, that will increase their own costs of living through additional assessments. Premiums for flood insurance that is required for coastal and near-coastal homes in the state rise almost annually. No, if Florida ever was a bargain when it comes to cost of living, it does not seem so anymore.
Neither is my home state of Connecticut. But the old saw that "You get what you pay for" is true when you compare the Nutmeg State to most zero-income-tax states. USNews ranks Connecticut #3 overall in terms of healthcare. (The state ranks #6 in terms of education; that implies other statewide positive qualities, such as universities and culture, that we can consider at another time.) Three of the top hospitals in the state are within 20 minutes of our home. If we moved full time to South Carolina, we would reduce our state income taxes, cut our property taxes by about 60% and lower our cost of living significantly. But the healthcare in SC cannot match that in Connecticut, and after two major surgeries in the last eight years and great confidence in my CT doctors, we will pay the extra tax.
Mark says:
I wholeheartedly agree with Larry about FL and CT. There is more to life for many of us than low taxes, including cultural and educational activities, support for our communities and diversity. Low taxes frequently come at the cost of other benefits with we enjoy.
Barbara says:
I totally agree with Larry and Mark. Taxes are important, but not the biggest factor that should be considered. Quality of life, which includes such things as quality healthcare, recreational and cultural opportunities, educational attainment of residents and opportunities for community, lead to a happy life.
Shelley Pitchford says:
Larry's article is not only well written, but it is also very informative. We need much more information - such as this provided by Larry - in assessing options and making informed decisions about any move. I hope he will become a regular contributor here, or at least a great guest contributor on a regular basis. Thanks for the good input.
Virginia says:
Larry thank you so much for the information.
I’m moving to Maryland to be close to my son and I’m scared because of taxes etc.
I also have a small (snowbird) condo in FL. I will use your resources to see which place I will call home.
Bob Walls says:
Just wondering if you also had a list of most veteran friendly states for retirement and benefits for both service connected disabilities and non-disabled veterans?
John Brady says:
I am so glad that everyone likes Larry Gavrich's comments. He has been a faithful contributor on this site for several years, and always has something valuable to say! Interesting that he not only has commented on a variety of topics, but has also written at least one article for us. That one comes from his very interesting website, Golf Community Reviews, which is all about living on golf courses. The article is "What I've Learned About Golf Communities - and the People That Live There".
His book, "Glorious Back Nine: How to Find Your Golf Community Home", is a step-by-step guide to finding a golf home. It is available in paperback and Kindle at Amazon.com and BarnesandNoble.com.
Larry says:
Bob,
Here are a few sites related to veterans, but I have not reviewed them and don't know if they are any more reliable than the ones I wrote about earlier. A quick look implies to me that they may be biased toward the most tax friendly states.
https://www.retireguide.com/guides/best-states-for-military-retirees/
https://veteranlife.com/career/best-states-for-military-retirement/
https://vaclaimsinsider.com/best-states-for-veterans/
Good luck....Larry
larry says:
Thanks to all, and to John, for the kind comments. As John indicated, I have been working with retirees (for nearly 20 years) helping them find golf communities in the Southeast US that best fit their lifestyles. I hope I didn't seem critical of Florida or other states in my earlier comments. My wife and I actually own a vacation home in South Carolina and my son lives in Florida. These states certainly offer benefits and advantages for some people. My point was that many people chase tax savings at the cost of other important aspects of their lifestyle. To that end, I am working on another article for my newsletter that considers the poor guidance that many websites and magazines provide through their rankings, especially "Best States in Which to Live." One to the next, they are confusing and misleading. For example, the website PersonalCapital.com ranks Vermont the 47th most "tax-friendly state" (that includes income, property and sales taxes). But the site TopAgency.com lists Vermont as the second best state overall and, in the category of affordability, #16. In producing its list, the author of the article at Personal Capital wrote, "So, this list is really for fun, but it also can be a good place to start if you’re thinking of relocating to a lower-tax state." No, it's not. Searching for a retirement home is serious business. These lists of best places to live are not a good place to start.
Sharon L Alexander says:
Bob, Western Washington has two vibrant bases here as well as a clandestine submarine base near the coast. Many of the military come back to Washington when they retire. I suggest you check them out as one of your options for military bases.
Sharon Alexander
BillyBogey says:
Canada is a great Country from Coast to to Coast!!
While I have had the pleasure of living & working in the U.S. & probably would move there again; in a heartbeat.
Canada is Home!!
Found it is True; you can take the Boy out of The Country, but you can not take The Country out of The Boy!!
So Sports Fans; "God Bless America"!! N.E.W.S.
Like Larry's advice.
Clyde says:
It pays to carefully check state income tax laws for retirees when deciding on a place to retire. For example, Connecticut is usually listed as “taxing Social Security.” For many, if not most, retirees in CT, this is not the case. For couples with a federal adjusted gross income of $100,000 or less ($75,000 if single), there is no CT income tax on SS benefits. Beginning this tax year (2022), there is also no state income tax on pension and annuity payments under the above income guidelines. Starting in 2023 there is a phase-out of state taxation on IRA distributions, again under the same income guidelines. By 2026 taxation on IRA distributions will be completely phased out. It appears likely the legislature will raise the maximum AGI income limit from $100k to $150k in the next 2-3 years. Source: Connecticut Offce of Legislative Research https://www.cga.ct.gov/2022/rpt/pdf/2022-R-0099.pdf
Virginia says:
Clyde, do you know where I can find out that exact information for Maryland?
John Brady says:
A lot of great ideas here, thanks folks. One of my favorite sayings came from a charming old time FL lawyer who was advising my very elderly mother about her tax situation. He told her, "Dorothy, don't let the tax tail wag the dog." In other words, do what you really want to do, and don't let fear of taxes control your life. Sage advice, in my opinion.
Brian S says:
Lots of good comments here. One thing I've learned is that everyone's situation is quite unique and different. My wife and I have lived in Northeast Ohio for over 30 years. Love everything but the winters. We looked out west and southwest, but climate change is having an effect. We are originally from the Illinois side of St. Louis and have plenty of family and friends still there. I've seen Illinois on the best and worst places to retire. It will be great for us - no state taxes for either of our federal pensions or my military pension, as well as no state tax for SS. We'll be located 15 minutes from a large air force base, so groceries will be tax free. However, for someone without these types of benefits, Illinois won't look as enticing to them as us. Good luck in your decision making and remember, life is too short to live with regrets!
Stevo says:
To Virginia: I lived in MD for 36 years and recently moved back to PA. Where are you looking to live in MD?
Admin says:
Regarding VA tax questions above, Under the "Best States to Retire" on this site you will find mini-retirement guides to every state and over a dozen foreign countries. For example, the guide to Maryland. The guides have a section on taxes and a link to the state tax departments where you check for more details. State tax info changes quickly and although we have a regular plan to update these pages, it is always possible there is a new law with changes.