How states tax retirement income

Taxes are one of the first things people compare when they think about retiring somewhere new, and for good reason: the difference between two states can be thousands of dollars a year. But the state with the lowest income tax isn't always the cheapest place to live. It depends on where your income comes from, what you own, and how you spend.

States with no broad income tax

Nine states don't tax wages or most retirement income at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. (New Hampshire ended its tax on interest and dividends in 2025, and Washington does tax very large long-term capital gains.)

These states still need revenue, so they often rely more on sales taxes, property taxes or fees. A retiree who owns a valuable home in a no-income-tax state can sometimes pay more overall than they would in a state with a modest income tax.

Social Security

Most states don't tax Social Security at all. In 2026, eight states tax at least some benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont. Most of them exempt benefits below certain income levels or after a certain age, so many retirees in those states owe little or nothing on Social Security.

Pensions, IRAs and 401(k)s

This is where states differ the most. Some exempt nearly all retirement income for people of retirement age; Illinois, Mississippi and Pennsylvania are well-known examples. Others exempt a set amount, exempt only certain pensions (such as military or government pensions), or tax retirement withdrawals like any other income.

If most of your income will come from IRA or 401(k) withdrawals, check how each state you're considering treats them specifically. It can matter more than the headline tax rate.

Property taxes

For homeowners, property tax is often the biggest ongoing state or local tax in retirement. Rates vary widely between states, and between counties within a state. Many states also offer relief for older homeowners, such as homestead exemptions, senior freezes or deferrals, but you usually have to apply.

Sales taxes

Sales taxes fall more heavily on people who spend most of what they have. Combined state and local rates differ a lot, and some states tax groceries while others don't.

Estate and inheritance taxes

Twelve states and the District of Columbia have their own estate tax, and five have an inheritance tax. Their limits are often far lower than the federal one, which matters if you plan to leave a home and savings to family.

How to compare two states

Start with your actual income: how much comes from Social Security, from a pension, and from savings withdrawals. Then look at the property tax on the kind of home you'd own, and a rough sense of your spending. A state's tax "friendliness" only means something once it's applied to your own mix.

This is general information about 2026 rules, which change often. A tax professional or each state's revenue department can confirm how the rules apply to you.