The Best States for Taxes in Retirement

Picture your dream retirement: sun-drenched beaches, world-class golf courses, and maybe cherished time with grandkids. Another powerful force can indeed shape your golden years too, though: taxes.

When imagining retired life, most people prioritize living near loved ones, finding warmer weather, saving on housing, and securing great healthcare—often striving for the perfect blend of these wishes while overlooking taxes.

The amount you’ll owe both to the state and locally each year can differ dramatically based on where you live, sometimes by thousands of dollars. If you’re working with a fixed retirement budget, understanding these tax differences is essential to making a smart, lasting choice when it comes to where you’ll live.

How states tax Social Security

Did you know your Social Security retirement benefits are perhaps not entirely tax-free? For many Americans, Uncle Sam could still come knocking depending on your income. If you’re single with a combined income topping $25,000 ($32,000 for couples filing jointly) from Social Security and other sources, up to 50% of your benefits could be subject to federal tax—a number climbing to 85% for Social Security benefits if you’re single with an income of $34,000+ ($44,000 for couples).

If Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, or Vermont are on your list for places to retire in 2026, keep in mind these states may tax your Social Security benefits as well. Before making your move, consider how these state taxes could affect your retirement income—especially if Social Security will act as your primary source of income. Here’s a breakdown by state for reference:

Colorado

Colorado offers a generous tax break for retirees; those aged 65+ can deduct all federally taxed Social Security benefits from taxable income at the state level. Residents aged 55 to 64, meanwhile, can still claim this deduction for an adjusted gross income of $75,000 or less as a single filer ($95,000 or less if married and filing jointly). Even if you exceed these income limits, you’re allowed to deduct up to $20,000 of your Social Security benefits. Plus, Colorado keeps things simple with a flat 4.4% income tax rate for everyone.

Connecticut

Connecticut takes a unique approach to taxing Social Security benefits, making it important to know where you stand. If you’re single (or married and filing separately), you can keep all your Social Security benefits tax-free so long as your adjusted gross income is less than $75,000. Married couples filing jointly—or those filing as head of household—have a higher threshold of $100,000, but up to 25% of your Social Security benefits could be taxed if your income climbs above these limits. The exact rate (ranging from 2% to 6.99%) depends on how much you earn, so understanding your exact status can help you keep more money in your pocket.

Minnesota

Minnesota offers generous state tax exemptions depending on your filing status. Married couples filing jointly who earn less than $108,230 enjoy a full exemption from state taxes. If you’re married but file separately, you’re fully exempt if your income is $54,160 or less. Single filers and heads of household can also benefit as incomes under $84,490 are completely exempt. Those with an income exceeding these limits still receive partial deductions until they reach a higher threshold. For example, joint filers with incomes of $144,321+ will see all federally taxable benefits subject to state tax. These rules make Minnesota’s tax system both accommodating and straightforward for many residents, with income tax rates varying between 5.35% and 9.85% based on adjustable gross income.

Montana

Montana follows the federal approach when taxing Social Security benefits. If your adjusted gross income (AGI) is less than $25,000 ($32,000 for couples filing jointly), you won’t pay any state tax on your benefits. As your AGI rises—up to $34,000 ($44,000 for couples)—a portion of benefits becomes taxable with up to 85% of benefits subject to tax at higher income levels. Tax rates vary between 4.7% and 5.9%, based on adjustable gross income.

New Mexico

Retirees in New Mexico can breathe a bit easier—if your adjustable gross income is under $100,000 ($150,000 for married couples filing jointly), you won’t pay state taxes on Social Security benefits. Plus, the state’s income tax rates remain relatively modest as they range from just 1.5% to 5.9%.

Rhode Island

If you’re a Rhode Island resident who’s reached full retirement age—age 66 or 67, depending on when you were born—or a qualifying widower, you could see big tax savings. So long as your income is under $107,000 (for single filers) or $133,750 (for married couples filing jointly), your federally taxable Social Security benefits are completely exempt from state taxes. Keep in mind partial exemptions don’t exist, however, and state income tax rates range from 3.75% to 5.99%.

Utah

All taxable income, including Social Security, in Utah is subject to a flat 4.5% tax rate. However, residents below specific income limits can receive a full tax credit on Social Security benefits, while those with higher incomes qualify for a reduced, gradually phased-out credit. More specifically, single filers with $54,000 or less, married couples filing separately with $45,000 or less, joint filers with $90,000 or less, and heads of household or qualifying widow(er)s with $90,000 or less receive the full credit. For income above these limits, the credit decreases by $1 for each $4 earned over the thresholds.

Vermont

If you’re a Vermont resident with an adjustable gross income of $55,000 or less—or up to $70,000 for married couples filing jointly—you’re in luck: you won’t owe any state taxes on your Social Security benefits. Even if your income is a bit higher (up to $64,999 or $79,999 for single or joint filers, respectively), you may still receive a partial exemption. Vermont’s income tax rates range from 0% to 8.75%, so knowing where you stand can make a big difference come tax season.

The most tax-friendly states for retirees based on retirement income

If you have a 401(k), IRA, or pension, it's important to know how your retirement income will be taxed. Nine states—Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming—stand out as true tax havens for retirees since you can take IRA or 401(k) distributions, collect Social Security benefits or a pension, and enjoy investment income without paying a dime in state taxes (though federal taxes still apply).

It’s no wonder many retirees dream of spending their golden years in such places to keep more of what they’ve earned. Not only do these states leave your retirement income alone, they also don’t tax any other type of income—a huge bonus for anyone planning to work a little in retirement. Plus, you can pass on more wealth to your loved ones with no estate nor inheritance taxes (Washington is an exception here).

Georgia also deserves a spotlight for retirees. While the state does tax most retirement income, it offers a generous retirement income exclusion whereby 62 to 64-year-olds can exclude up to $35,000 of retirement income (jumping to $65,000 for those aged 65+). Retirement income covers interest, dividends, net rentals, capital gains, royalties, pensions, annuities, and even the first $5,000 of earned income. With a flat income tax rate of 5.19%, Georgia provides a compelling option for retirees looking for a balance of affordability and Southern charm.

States that impose inheritance or estate tax (or both!)

You’ve probably heard the terms “inheritance” and “estate” tax tossed around as if they’re the same thing—but did you know the real difference comes down to who foots the bill? While we won’t dive into the nitty-gritty here, it’s important to know these taxes can have a major impact on how much retirees leave behind for their loved ones. According to Tax Foundation data, 17 states and the District of Columbia currently levy estate and/or inheritance taxes (with Maryland charging both!). Here’s a quick overview of each…

Connecticut

Connecticutcharges an estate tax with an exemption of up to $15 million (meaning anything below this isn't subject to tax) at a flat rate of 12%.

Hawaii

Hawaii imposes a progressive tax starting at 10% and rising to 20% on estates worth at least $5.49 million. The state has no inheritance tax.

Illinois

Illinois imposes only an estate tax, with rates based on the value of the estate and capped at 16% with an exemption of $4 million (note that a bill currently under consideration would double the exemption if passed as-is).

Kentucky

Kentuckydoesn't charge an estate tax but currently levies an inheritance tax based on the inheritance amount and relationship to the decedent (up to 16%).

Maine

Maineestate tax rates vary between 8 to 12%, with an exemption of $7 million and no inheritance tax. Legislation was introduced in 2025 to reduce the current exemption with no bill passed as of yet.

Maryland

Maryland charges both an inheritance and estate tax with a tax exemption of $5 million (plus any exclusion amount for the predeceased spouse), topping out at 16%. The inheritance tax is a flat 10% rate with a $1,000 exemption, sometimes waived based on one's relationship to the deceased (e.g., if the inheritor is the deceased’s child or direct descendent, the spouse of a child or direct descendent, a spouse, parent, grandparent, sibling, stepchild, or stepparent).

Massachusetts

Massachusettshas no inheritance tax, with the state’s progressive estate tax kicking in for those valued at over $2 million and topping out at 16%—depending on the value of the estate.

Minnesota

Minnesota has no inheritance tax and an estate tax exemption of $3 million ($5 million for qualified farmers and small business owners), with rates ranging from 13% to 16%.

Nebraska

Nebraskadoesn’t charge an estate tax but does have an inheritance tax as high as 15% (with a $100,000 exemption), based on the amount of the inheritance and relationship to the decedent.

New Jersey

New Jersey doesn’t have an estate tax but levies an inheritance tax of up to 16% based on the amount received and the relationship between the decedent and beneficiary or transferee. Surviving spouses, parents, children, grandchildren, etc., for example, are exempt (considered "Class A" beneficiaries) while nieces, nephews, aunts, uncles, friends, and other non-relatives are subject to inheritance tax.

New York

New York doesn’t charge inheritance tax but does levy estate taxes for values exceeding $7.35 million, with rates ranging from 3.06% to 16%. What’s more, if the value of one’s estate exceeds 5% of the current exemption at the time of his/her death, the entire estate is subject to tax (referred to as a “cliff tax”).

Pennsylvania

Pennsylvaniaonly charges an inheritance tax—up to 15%—based on relationship to the decedent, but this doesn’t apply to spouses, parents (if the decedent is younger than 22), or children under the age of 21. In addition, a 5% discount applies on the tax paid or due—whichever is less—when the payment is made within 3 months of the decedent’s death. Pennsylvania does not have an inheritance tax exemption.

Oregon

Oregon estate taxes start at 10% and rise to 16%, applied to estates above $1 million. The state has no inheritance tax.

Rhode Island

Rhode Island, which also has no inheritance tax, charges an estate tax that currently tops out at 16% with an exemption of up to $1,838,056.

Vermont

Vermont doesn’t charge an inheritance tax but does have a flat estate tax of 16% with an exemption of up to $5 million. Residents are allowed to make deductions to reduce estate value when they file based on marital status, debts and administration expenses, or charitable deductions.

Washington

Washington has no inheritance tax, but the state imposes an estate tax (between 10% and 20%) on those exceeding $2.193 million. An additional deduction of up to $2.5 million is available for family-owned businesses valued at $6 million or less.

Washington D.C.

Washington D.C. levies an estate tax applicable to any estate worth more than $4,988,400 with tax rates topping out at 16%.

States with the lowest property taxes

Housing costs—mortgage, rent, property taxes, insurance, maintenance, and repairs—are the largest expense for retirees. In fact, the average retiree household dedicates an average of $22,193 annually ($1,849 per month) on housing alone, more than 36% of annual expenditures. It's therefore crucial to consider and plan for these costs during retirement, especially if you'll have a limited income.

In many states, property taxes make up a major slice of the housing expense pie—sometimes even more than the mortgage itself. New Jersey tops the list with the highest property tax rates in the country and a steep 2.23% effective real estate tax rate (per WalletHub) with an annual tax bill of about $9,541 for a typical home valued at $427,600. Other states with hefty tax bills include Connecticut ($6,575), New Hampshire ($6,505), New York ($6,450), and Massachusetts ($5,813).

On the flip side, some states offer a much lighter tax burden for homeowners. Want to keep more money in your pocket? Consider places like Alabama ($738), West Virginia ($835), Arkansas ($1,003), Louisiana ($1,146), and South Carolina ($1,199) where property taxes are among the lowest in the nation.

States with the lowest sales tax

If you're living on a fixed income, every dollar truly matters. That’s why it’s smart to keep an eye on sales tax rates: everyday costs that add up quickly. The good news? You can keep more of your hard-earned money in Oregon, New Hampshire, Montana, and Delaware, which don’t charge any sales tax at all, and Alaska with a rate of just 1.82%—meaning your purchases go further in these states.

Unfortunately, some states hit your wallet a bit harder at the register. According to the latest Tax Foundation data, Louisiana tops the list with a hefty 10.11% combined sales tax followed by Tennessee (9.61%), Arkansas (9.51%), Washington (9.46%), and Alabama (9.46%). Those who call one of these states home should budget carefully for these extra costs.

Where people are retiring

Instead of getting lost in spreadsheets, imagine exploring sun-soaked beaches, charming towns, and vibrant communities—favorite landing spots for retirees. To spark your interest when it comes to this topic, we dug into three years of SmartAsset data and (unsurprisingly) learned Florida tops the list as America’s retirement hotspot. The Sunshine State’s popularity is so overwhelming, in fact, that it’s barely a contest—even with rising homeowner’s insurance costs making waves in the state.

In sum: tax-friendly states for retirees

Choosing where to spend your golden years is about more than just sunny weather and scenic views; your financial future is at stake, too. Understanding how taxes can impact your retirement income is key to keeping more of your hard-earned money and enjoying retirement.

Want to get the most out of your retirement? Schedule a FREE discovery call with one of our CFP® professionals to get your questions answered.

About the author
The content in this post was developed by our team of writers and reviewed by our team of CFP® professionals here at Vision Retirement.

Retirement Planning | Advice | Investment Management

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. Schedule a no-obligation consultation with one of our financial advisors today!

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.

Sources for this article include Tax Foundation, Kiplinger, SmartAsset, and WalletHub.