8 Terrible Tax States for Retirees

Retiring on a budget is not an easy task - especially when you live in a state that has high taxes. Here is a list of 8 states you may want to avoid if you are seeking a low tax retirement location.
California has one of the highest income tax rates in the country, and property is taxed at 100 percent of its full cash value.
Retiring on a budget is not an easy task – especially when you live in a state that has high taxes. Here is a list of 8 states you may want to avoid if you are seeking a low tax retirement location.

Each year, Kiplinger and other financial analysts offer advice on which states are the most and least tax-friendly destinations for retirees. The criteria for these lists can vary, but they generally attempt to look at the total tax burden including taxes on income, property, sales, pension, Social Security benefits, and inheritance.

While the actual implications of tax laws in any state will depend on your own particular retirement situation, there are some states which might require a closer look before relocating. Here are our picks for states to avoid if a low tax burden is high on your list of retirement priorities.

1. Vermont

Unless you have Railroad Retirement benefits, living in Vermont will not offer any exemptions for your retirement income. Out-of-state government pensions are fully taxed, as are Social Security benefits. State sales tax is collected at 6 percent, with exemptions for food, prescription drugs, clothing and shoes priced below $110, and other items. However, local jurisdictions can add another 1 percent. Prepared foods, restaurant meals and lodgings are taxed at 9 percent, and alcoholic beverages served in restaurants are subject to a 10 percent tax.

2. Minnesota

If the cold weather isn’t enough to make older adults relocate, Minnesota’s unfriendly tax laws may drive retirees away. Pensions are subject to state income tax regardless of where they were earned, except for Railroad Retirement benefits which are exempt in every state. Social Security benefits are taxed to the same extent they are taxed on your federal return. The state sales tax is just under 7 percent, and some cities and counties can tack on their own sales tax as well. Food, prescription and non-prescription drugs, and clothing are exempt, but alcohol is taxed at over 9 percent.

3. California

Though California is often seen as a retirement hot spot, its tax laws are not friendly to retirees. Social Security and Railroad Retirement benefits are the only retirement funds which are tax-exempt. The state has one of the highest income tax rates in the country, and property is taxed at 100 percent of its full cash value. State sales tax is high and localities can add their own taxes as well, although food and prescription drugs are exempt.

4. Connecticut 

Veterans in Connecticut receive a 50 percent tax-exclusion on benefits from their military pensions, but other retirees are out of luck, as the state offers no tax exemptions or credits for other retirement income. Out-of-state pensions are fully taxed, and Social Security benefits may be taxed as well, depending on your total income. Connecticut’s real estate taxes are among the highest in the country, and property is taxed at 70 percent of its full market value. Depending on their age, residents may qualify for a property tax credit or rent rebate. There is no inheritance tax, but Connecticut does impose an estate tax on estates worth $2 million or more.

5. Nebraska

While Railroad Retirement benefits are exempt in every state, they are the only type of retirement funds which are tax-exempt in Nebraska. Out-of-state government pensions are fully taxed, as are the benefits from military pensions. State sales tax is collected at 5.5 percent, with an exemption for food and prescription drugs, but localities can add another 1.5 percent. Real estate taxes are assessed at 100 percent of the property’s market value, but a homestead exemption may offer qualifying retirees a break on property taxes.

6. Oregon

Oregon is a great place to shop as there is no sales tax throughout the state. However, living in Oregon is another story. Along with Hawaii, Oregon has the distinction of having the country’s highest personal income tax rate. Oregon does not tax Social Security or Railroad Retirement benefits, but other forms of retirement income are subject to state taxes. Retirees may be eligible for a tax credit, depending on age and income. The state also has a Senior Citizen Property Tax Deferral Program for qualifying residents.

7. Iowa

On the plus side, Iowa allows retirees to exclude a portion of retirement plan distributions from their state income taxes: up to $6,000 for single retirees and up to $12,000 for married couples. That exemption does not include Social Security benefits, but the state is gradually phasing out taxes on Social Security income. Real estate owned by retirees is taxed at 100 percent of its market value, and most property is taxed by multiple taxing authorities. There are inheritance taxes on any estate worth more than $25,000, however, the surviving spouse’s share is not subject to this tax.

8. New Jersey

While New Jersey is listed among the highest in the country for real estate taxes, the state does offer some tax breaks for retirees. When it comes to retirement funds, Social Security, Railroad Retirement benefits and military pensions are not taxable. New Jersey income tax rates are high, but retirees may be able to exclude a portion of their retirement funds if they qualify for the state’s Pension Exclusion. Property taxes are very high, and the state has both inheritance and estate taxes (with some exemptions).

Can you spot the $207,744 difference between these identical homes?

Financing is the difference!

Get the details in The 62+ Loan Homebuyers Guide.

55places Mortgage is a joint venture between Mutual of Omaha Mortgage and 55places.com.
Details here.

Share this post:

We're here to help! (800) 928-2055

Call us to speak with a customer service representative.

Subscribe to Our Newsletter

Get Weekly Updates

I agree that 55places and its affiliates, partner providers or agents may call, text, or email me about my inquiry, which may be made with automated means. I understand that my consent is not a prerequisite for buying a property. I may revoke my consent at any time by contacting [email protected] Message/data rates may apply. I also agree to 55places.com’s Privacy Policy and Terms of Use.

The Best Places to Snowbird in 2021

We’ve gathered 25 of the best places for snowbirds, including cities in Florida, Arizona, California, Texas, South Carolina, and Nevada. For each entry, we’ve also provided a list of recommended 55+ communities in the area. If you’re ready to find your own winter retreat this season, here are some of the best places to consider.

A woman drinking her morning coffee on a balcony overlooking Downtown Miami.

Urban 55+ Communities: You Can Retire in These Cities

There are many benefits to living in a city, from having easy access to daily needs like grocery stores and pharmacies to having an assortment of cultural amenities and entertainment options nearby. Still not convinced? Here are some cities with urban 55 communities that just might pique your interest.

Happy mature couple dancing together in the kitchen at home in a 55+ community.

Top 10 Benefits of Living in a 55+ Community

Living in a 55+ communitiy is so much more than just convienent for active adult retirees. The right community will help them downsize, manage their finances, increase their activitiy, and meet new people. Check out all the benefits of living in a 55+ community.

View of Downtown Provo, Utah during autumn at dusk.

The Best Cities for Aging in Place

Deciding on where to retire is always a challenging question. What do you look for when searching for your ideal place to age in place? There are a variety of factors that come into play when looking for that perfect spot such as health care, wellness, general livability, transportation, or community engagement, just to name a few.

Closed up on a tiny wood home model on green grass with sunlight background.

This Month in Real Estate: A Housing Market Summary

The new year is showing that the predicted changes coming to the housing market were accurate and kept with the trend for 55+ homebuyers. If you’re just entering the housing market as a homebuyer, make sure you’re aware of the changes happening so you’re prepared to make the best purchasing decision. 

Aerial view of a picturesque olive plantation in Bakersfield, California.

The Cheapest Places to Live in California

With almost year-round sunshine, some of the world’s prettiest beaches, world-class shopping and dining, and a never-ending list of recreational and entertainment opportunities, it’s no wonder California is such as sought-after state to settle down in.

A sunset over Huntington Beach Pier in California.

The Active Adult Travel Guide to California

California is known for its diverse regions and cities. This means if you’re an active adult looking to vacation in the Golden State, you’ll have a lot of options. We breakdown the state into its three main regions and find everything you should do while on vacation.

About 55places

We’re changing the way people 55 and older are searching for their perfect next place. With a national network of hand-selected real estate experts, plus comprehensive information, unbiased content, and on-the-go insight about thousands of communities across the country, we’re a trusted resource paving the way from here to home. Whether you’re interested in a low-maintenance single-level residence, an active lifestyle or age-qualified community, an intimate enclave, or anything in between, we can help you make your next move the best one yet.

Scroll to Top