The Best U.S. States for Tax Benefits in Retirement

March 14, 2025
The Best U.S. States for Tax Benefits in Retirement

Introduction

Choosing the right state to retire in can significantly impact a retiree’s finances, especially when it comes to taxation on retirement income, property taxes, and sales taxes. Some states offer substantial tax benefits for retirees by excluding Social Security income from taxation, having no state income tax, or providing property tax relief programs.

This article explores the best U.S. states for retirees based on income tax policies, retirement income exemptions, and overall tax-friendliness.

 

1. States with No State Income Tax

One of the biggest tax advantages for retirees is living in a state that does not levy state income tax. The following states do not tax income, including retirement income:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

These states allow retirees to keep more of their Social Security benefits, pensions, and investment income without state tax deductions.

 

2. States That Do Not Tax Social Security Benefits

Some states levy state income tax but fully exempt Social Security benefits from taxation, reducing the tax burden for retirees. These states include:

  • Illinois
  • Iowa
  • Michigan
  • Pennsylvania
  • North Dakota
  • Ohio
  • Wisconsin

For retirees who rely heavily on Social Security, moving to a state that does not tax these benefits can lead to significant savings.

 

3. States with Low or No Tax on Pensions and Retirement Withdrawals

Some states do not tax pension income, 401(k) withdrawals, or IRA distributions, making them attractive for retirees with significant retirement savings. These states include:

  • Illinois – Exempts all pension, 401(k), and IRA income.
  • Mississippi – Does not tax 401(k), IRA, or pension withdrawals.
  • Pennsylvania – Fully exempts retirement distributions.
  • Hawaii – Exempts employer pensions but taxes 401(k) and IRA distributions.

 

4. States with Low Property Taxes for Retirees

Property taxes can be a major expense for retirees, and some states offer low property tax rates or special exemptions for seniors:

  • Alabama – One of the lowest property tax rates in the U.S.
  • South Carolina – Offers significant homestead exemptions for seniors.
  • Wyoming – Provides property tax rebates for retirees.
  • Florida – Offers additional property tax exemptions for homeowners over 65.

 

5. States with Low or No Sales Tax

Sales tax impacts daily expenses, especially for retirees on a fixed income. The following states have no state sales tax:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

Additionally, some states reduce or exempt sales tax on groceries and essential items, further lowering costs for retirees.

 

Conclusion

Retirees looking for tax-friendly states should consider state income tax policies, Social Security exemptions, pension taxation, and property tax relief programs. States such as Florida, Nevada, and Texas stand out for having no state income tax, while Illinois, Pennsylvania, and Mississippi offer full exemptions on retirement income. Careful tax planning can help retirees maximize their savings and minimize tax burdens. 

 

Tax Partners can assist retirees in evaluating tax-efficient retirement strategies and choosing the best state for financial security.

 

This article is written for educational purposes.

 

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.

 

Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.

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