Retire Richer: The Best Tax-Friendly States for Retirees

The word tax beside rows of rising coins and a U.S. dollar bag on a table.
Here are the best tax-friendly states for your retirement!

If you’re planning to retire to a 55+ active adult community, it’s important to know the best tax-friendly states for retirees. You may have your heart set on the sun, but states like California and Arizona aren’t as tax-friendly as states like Florida. Some southern states such as Georgia, Mississippi, and Kentucky are also more tax-friendly to retirees.

Some states don’t tax social security or withdrawals from retirement funds. Other states don’t tax retirement income at all, while some tax investment income but not retirement income or income earned through part-time work. There are so many variations, and it could make a difference of thousands of dollars each year to your finances.

Of course, there are many things to take into account when considering the best state to retire to. Taxes is only one of them. You’ll want to consider the climate, proximity to family and friends, quality and availability of local health care, and so on. But prices are always going to rise. So if you’re retiring on a fixed income, it’s important to get every tax break you can.

Here’s our guide to the best tax-friendly states for retirees.

Florida

Palm trees on the beach in Fort Lauderdale Beach, Florida.

Florida ranks best out of the three most popular states for a warm-weather retirement: California, Florida, and Arizona. For a start, it has no state income tax. There’s also no estate or inheritance tax.

Property Taxes

The average rate of property tax across Florida is 0.80%, which is below the national average of just under 1%. This means you’ll be paying 20% less in property taxes by choosing Florida, although there are obviously variations by county. The price of the average Florida house is marginally below the national average.

Sales Taxes

The statewide sales tax in Florida is 6%, and the average sales tax (when you add in local county and city sales taxes) is around 7%. In this respect, Florida is close to the national average.

Retirement Income Taxes

As there is no state income tax, you’ll only be responsible for paying federal income tax if you choose to retire in Florida.

Tax Exemptions for Seniors

Provided your Florida home is your main residence and not a winter vacation home, you’ll qualify for Florida’s homestead exemption. This exempts $25,000 of your home’s assessed value from property taxes. This applies to everyone. However, in some counties, people over 65 can claim up to an additional $50,000. Another benefit for seniors is that withdrawals from retirement accounts are not taxed.

Mississippi

The lighthouse at dusk in Biloxi, Mississippi.

Mississippi is one of the best states to retire to for taxes, with all retirement income exempt from state taxes and low rates for property taxes too. There’s no estate or inheritance tax either.

Property Taxes

Mississippi property taxes are among the lowest in the country, averaging 1.04% across the state. They do vary widely by county, from as low as 0.48% to 1.45%. Property values are also low, with a typical house being worth 38% of the national average.

Sales Taxes

The sales tax across Mississippi is 7%, except for the capital city, Jackson, where it’s 8%. Groceries aren’t exempt from sales tax, although prescription drugs are.

Retirement Income Taxes

In Mississippi, all social security payments are exempt as are withdrawals from retirement funds and pension income. All retirement income of this kind is only liable for federal taxes. The one exception: If you’re past retirement age but are still working, even at a part-time job, then the income you earn is also liable for state tax. The state tax rate is 5% on income over $10,000.

Tax Exemptions for Seniors

Mississippi residents aged 65 and over get a break on property taxes with the first $7,500 of a home’s assessed value being exempt from property tax.

Pennsylvania

Aerial view of the Pennsylvania State Capitol building in Harrisburg.

With low sales taxes and tax breaks for retirees, Pennsylvania is another great state for retirees who want to avoid high taxes.

Property Taxes

The average property tax rate statewide is 1.36%, which is among the highest in the country. In some places, like Allegheny County, it’s as high as 2%, so choose your retirement location carefully. To help counteract that, the average home price in Pennsylvania is only 62% of the national average.

Sales Taxes

The statewide sales tax rate is 6%, which is on the high side, but there are no additional local sales taxes, with two exceptions. Philadelphia County levies an additional 2%, and Allegheny County (where Pittsburgh is located) has an additional 1% sales tax. There are, however, several exemptions from sales tax, including food, prescription drugs, and most clothing.

Retirement Income Taxes

Social security isn’t taxed in Pennsylvania, but the state tax rate is a flat 3.07%. Income from retirement accounts is also tax-free for people aged 60 and over. For people aged 59.5 and over, income from pensions is also free of state tax. You only need worry about your federal taxes. However, Pennsylvania does also have an inheritance tax, so you should look into that more deeply if you think it will affect you.

Tax Exemptions for Seniors

Pennsylvania has a Property Tax Rebate program for seniors with low incomes.

Nevada

An empty road through the Valley of Fire State Park in Nevada.

Nevada is another state that’s popular among retirees. It has no state income tax, no estate or inheritance tax, and very low property taxes.

Property Taxes

The statewide average property tax is a very low 0.53%, which is around half the national average. There are also exemptions of different amounts for veterans, disabled veterans, people who are blind or almost blind, and people whose spouses have passed away. Although home prices in the state are 13% higher than the national average, property tax is assessed on only 35% of the fair market value rather than the 100% that it is in most states.

Sales Taxes

One drawback to Nevada is that the state has relatively high sales taxes. The state sales tax is only 4.6% but local sales taxes vary considerably. In some areas, they’re 0% but in others, they can be as high as 3.35%. Most counties and cities have fairly high sales taxes, making the statewide average a high 8.37%. Sales tax in Las Vegas totals 8.38%, so it pays to check the local sales tax before committing to a particular retirement community.

Retirement Income Taxes

With no state income tax, you’ll only be responsible for paying federal taxes.

Tax Exemptions for Seniors

Withdrawals from retirement accounts aren’t taxed in Nevada. Otherwise, there are no specific tax exemptions for seniors, although there are attractive sales tax exemptions. These include prescription drugs, some medical supplies including wheelchairs, and groceries.

Kentucky

A sunset over pastures and green fields in Kentucky.

Kentucky does have state income tax but fairly low rates of sales tax and property taxes.

Property Taxes

The average rate of property tax across Kentucky is 0.83%, which is around 10% below the national average. The average property value is also less than half the national average, meaning that property taxes are very low in Kentucky relative to most states. In addition, anyone aged 65 and over who is a homeowner and full-time Kentucky resident qualifies for the Kentucky homestead exemption. This varies year to year, but for the last two years, this has reduced the property’s assessed value by $40,500.

Sales Taxes

Kentucky’s state sales tax is 6%, which is below the national average. There are no city or area sales taxes to add to this because, in Kentucky, they’re only allowed to collect local income taxes. Sales tax exemptions include most (but not all) groceries, prescription drugs, and some medical supplies such as prosthetic devices.

Retirement Income Taxes

Kentucky state income tax is levied at 5%, but social security income is exempted from this.

Tax Exemptions for Seniors

Seniors get an extra income tax break in Kentucky because they can deduct a sizeable amount (currently $31,110) from their income before calculating the tax owed. This means if you receive a social security payment, plus a private pension of up to $31,110 a year, you’ll pay no state tax. However, withdrawals from retirement accounts are included in your income calculation, so some tax will be due if you pass the $31,110 threshold.

Georgia

Tallulah Gorge in the autumn season in Tallulah Falls, Georgia.

Georgia is another great state to retire to for taxes, with attractive deductions available for seniors.

Property Taxes

The average property tax across the state of Georgia is 0.81% or 20% lower than the national average. House prices in Georgia are about 74% of the national average, meaning lower property taxes for retirees.

Sales Taxes

The state sales tax rate in Georgia is 4%, one of the lowest in the nation. However, high local sales tax rates cancel that out. The average total sales tax across the state is 7.72%, just above the national average. Groceries are exempt from state sales tax, but local sales taxes do apply, so you’d pay on average almost 4% in sales tax on groceries. Medical services, medical devices, and prescription drugs are exempt from all sales taxes.

Retirement Income Taxes

Social security income is not taxed in Georgia. All other income is taxed at a flat rate of 20%, with exceptions for older people.

Tax Exemptions for Seniors

For those aged 62-64, an exclusion of $35,000 applies to all retirement income. When you reach the age of 65, the exclusion rises to $65,000. Those who are 65 and older, or legally blind, also get a tax deduction of $1,750 for single filers or $1,400 per person for those married filing jointly, married filing separately, or surviving spouses.

New Hampshire

View across the water of Portsmouth, New Hampshire at dawn.

New Hampshire has pros and cons for those looking for the best states to retire to for taxes. While there’s no state sales tax and no tax on earned income, property taxes are high (as are property prices compared to the other states mentioned here).

Property Taxes

The average property tax rate in New Hampshire is 1.77%, and the average homeowner pays almost twice the national average in property taxes. Home prices in New Hampshire are around 5% above the national average. There’s a system of property tax rebates for those on a low income.

Sales Taxes

New Hampshire is one of only four states which has no state sales tax, the others being Delaware, Montana, and Oregon. New Hampshire does have some of what are called sin taxes, taxing cigarettes and alcohol, for example. There are no local sales taxes either.

Retirement Income Taxes

There’s no state tax on earned income in New Hampshire, so if you’re still working part-time after retirement, your income is all yours to keep. You’ll, of course, have to report it on your federal tax returns. Social security isn’t taxed at the state level either, and neither are retirement pensions and withdrawals. You do have to pay tax on dividends and investments; although, this is planned to be phased out by January 2027. If you hope to retire to New Hampshire before then, you might consider cashing in some of your investments before you move and putting the money into a pension or retirement fund instead.

Tax Exemptions for Seniors

There’s no estate or inheritance tax in New Hampshire.

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