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States With The Lowest Taxes to Retire In

5 minute read

By WalletGenius Staff

The best advantage that retirement brings is that you no longer need to be tied down to your job. Retirees can take this opportunity to relocate anywhere they want. That is why you may see many retirees relocate during their senior years. When choosing a state for your retirement, it is important to consider the proximity to family and friends, climate, and other aspects when making your choice. But, most importantly, ensure to review the taxes of the state.

Why Are Taxes So Crucial?

Some states in the U.S. are more tax-friendly for retirees when compared to others. The advantage of these states is determined by the rates of income tax, sales tax, and property tax that are charged by the state.

Tax data collected by personal finance site Kiplinger shows that the tax burden in one state can vary by almost thousands of dollars per year compared to another state. As such, it is beneficial to understand the tax benefits that some states provide for retirees.

States That Impose the Lowest Tax on Retirees

Wyoming

The state of Wyoming does not levy any income tax, so retirees do not have to worry about a big state tax bill. In addition to its picturesque natural beauty, Wyoming offers a low sales tax rate of just four percent.

Wyoming has a relatively affordable cost of living without any estate or inheritance tax making it one of the most ideal states for retirement. The average property tax is $635 per $100,000 in home value.

Florida

The sunshine state of Florida welcomes retirees with no state income tax. So, people who want to continue working part-time can get the most out of their earnings.

Florida offers a sales tax rate of six percent. Plus, the average property tax is at $1,041 per $100,000 in home value.

South Carolina

Retirees looking for coastal living with generous retirement income exclusions may find South Carolina as the ideal option. This state offers an income tax ranging between three to seven percent.

The property taxes are also affordable at $601 per $100,000 in home value. Even better, there is no estate or inheritance tax applied.

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Delaware

Delaware offers retirees with not only long shorelines, but also no sales tax. The state income tax ranges from 2.2 to 6.6 percent. The property tax may be slightly higher when compared to some other states, but there is zero estate or inheritance tax.

Overall, Delaware is a fairly tax-friendly state that allows you to live with more disposable income in your golden years owing to no sales tax on all in-state purchases.

Nevada

The western state of Nevada is yet another tax-friendly state for retirees with no state taxes. Retirees can cash in their retirement funds and collect their social security checks without worrying about a large tax burden.

Property taxes are at an average rate of $693 per $100,000 in home value and there is zero estate or inheritance taxes. However, the state sales taxes are a little high at 6.85 percent.

Tennessee

The state of Tennessee does not tax social security, job earnings, and pension income. The state only taxes dividends and interests. Moreover, retirees over 65 years with a low income are excluded from these taxes. The urban and rural settings provided by Tennessee with zero estate or inheritance tax and affordable property taxes at about $768 per $100,000 in home value make it yet another state you may want to retire in.

While making your choice make sure to consider the seven percent sales tax that you will incur while shopping.

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Arizona

The state of Arizona has a relatively low state tax ranging between 2.59 to 4.5 percent. Even better, the state exempts social security benefits from income tax, making it an attractive retirement destination.

Besides, Arizona does not impose estate or inheritance tax and the average property tax rate is at $617 per $100,000 in home value.

Alabama

The state of Alabama has a low cost of living coupled with affordable taxes. The income tax ranges between two to five percent. Plus, the state sales tax is at four percent, one of the lowest offered in the country.

All these benefits combine to make this a state ideal for retirees looking for a quiet place to retire in.

Colorado

Colorado has a flat 4.55 percent state income tax, and their average property tax is the third-lowest in the country at $494 per $100,000 in home value. The centennial state also provides tax savings as it does not impose an estate or inheritance tax.

Alaska

Not everyone would consider Alaska when planning for retirement. However, this northernmost and largest state by area in the U.S. is the only state that does not have a state income tax or state sales tax. In order to provide the state’s services to the residents, the state collects revenue through a high property tax.

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Mississippi

Various retirement incomes are not subject to state income tax in Mississippi. Income in the form of pensions, social security payments, withdrawals from IRAs, and 401(k) funds can be excluded from the taxable income. The property tax rate in this state is at $862 per $100,000 in home value.

Retirees are cautioned to take the seven percent state sales tax into account when choosing this as their retirement destination.

Hawaii

The tropical paradise state of Hawaii allows retirees to enjoy savings with tax exemptions on social security benefits. The state income tax may range from 1.4 to 11 percent depending on the taxable income.

The housing prices on this island state are high, but the state offers the country’s lowest property taxes averaging at $280 per $100,000 in home value.

The Bottom Line

The state where you decide to retire can make a huge difference, especially when you have to stretch your retirement savings. The less money you pay in taxes, the better you are financially when you are on a fixed retirement income.

The state income tax should be your priority if you are expecting a fair amount of post-retirement income. However, if you will be living on social security benefits, then property taxes and sales taxes are more important.

The states highlighted in this article are great options as eventual retirement destinations. Ultimately, selecting a retirement location is a personal choice and it is best to evaluate all factors before you make your decision.

WalletGenius Staff

Contributor

This article was worked on by a number of the WalletGenius staff, including freelancers, full-time writers, and editors.

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