Retirees continue to pay taxes in retirement. Taxes will be calculated much like how they are before retirement and it is important to estimate the amount one will pay in retirement so that finances can be planned accordingly. If a person is relocating to a different state for retirement, it is important to examine the state taxes on retirement benefits. Some states are friendlier for retirees tax-wise than others, and because retirees have special financial concerns, taxes can be a large factor when deciding where it is best to retire. Special financial concerns for retirees include whether Social Security benefits are taxable at the state level, property taxes, and how retirement account and pension withdrawals are taxed.
There are seven states with no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee impose income taxes only on dividends and interest (which Tennessee is getting rid of in 2020). These nine states are considered to be “tax-friendly” or “most-tax friendly” for retirees among others.
The ten most tax-friendly states for retirement (in no particular order) are Alaska, Flroida, Georgia, Kentucky, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, and Wyoming. Some states allow tax exemption for military personnel or emergency services personnel, or allow deductions up to a certain amount. Some states do not offer any retirement income tax benefits. These states are considered to be “not tax-friendly,” “least tax-friendly,” or “mixed.”
The ten least tax-friend states for retirement (in no particular order) are: Connecticut, Indiana, Kansas, Maryland, Minnestoa, Nebraska, New Mexico, Utah, Vermont, and Wisconsin. In addition to income tax, retirees must also consider sales, property, estate, and inheritance tax rates. Below is a table of each state’s tax friendliness for retirement categorized by most tax-friendly, tax-friendly, least tax-friendly, not tax-friendly, and mixed.