When planning your golden years, one major factor that often gets overlooked is taxation in retirement. The state you choose to retire in can significantly affect how much of your pension, Social Security, and investment income you actually get to keep. In this comprehensive guide, we’ll explore the best states for retirement taxes in 2025, based on state income tax rates, Social Security treatment, pension taxation, and property tax friendliness.
📌 Table of Contents
- Why Retirement Taxes Matter
- Factors That Make a State Tax-Friendly for Retirees
- Top 10 Best States for Retirement Taxes in 2025
- State-by-State Tax Comparison Table
- States to Avoid for Retirement (High Taxes)
- Additional Tax Considerations for Retirees
- Final Thoughts
Why Retirement Taxes Matter
Your retirement income may come from multiple sources—Social Security, IRAs, pensions, annuities, and investments. Depending on the state, each of these can be taxed differently. By choosing a tax-friendly state, retirees can potentially save thousands of dollars per year.
Here’s what taxes can impact your retirement:
- State income taxes
- Taxation of Social Security
- Pension and IRA taxation
- Sales and property taxes
- Estate and inheritance taxes
Factors That Make a State Tax-Friendly for Retirees
When evaluating a state for retirement taxes, consider these key factors:
| Tax Factor | Ideal Retirement Scenario |
|---|---|
| State Income Tax | No tax or exemptions for retirement income |
| Social Security Tax | Not taxed or fully exempt |
| Pension/IRA Taxation | Exempt or partially exempt |
| Sales Tax | Low or no sales tax |
| Property Tax | Low rates with senior exemptions |
| Estate/Inheritance Tax | No such taxes |
Top 10 Best States for Retirement Taxes in 2025
Let’s explore the most tax-friendly states for retirees, based on total tax burden and retirement income exemptions.
1. Florida
- No state income tax
- Social Security and retirement income not taxed
- Homestead exemption reduces property tax
- Warm weather & senior-friendly amenities
2. Wyoming
- No income tax
- No tax on Social Security or pensions
- Low property and sales taxes
- Strong economic stability
3. Tennessee
- No tax on earned income (as of 2021, Hall Income Tax repealed)
- Retirement income fully exempt
- Low property taxes
- Low cost of living
4. Nevada
- No income tax at all
- Retirement income fully tax-free
- Moderate property tax, no inheritance tax
- High sales tax (offset by other benefits)
5. South Dakota
- No income tax
- Social Security and IRA distributions not taxed
- Low property tax burden
- No estate tax
6. Alaska
- No state income or sales tax
- Annual “Permanent Fund Dividend” to residents
- Cold climate, but extremely low tax burden
7. New Hampshire
- No tax on wages or retirement income
- Interest/dividends tax being phased out by 2027
- No sales tax
- High property tax but offset by no income tax
8. Mississippi
- Doesn’t tax Social Security, IRAs, 401(k)s, or pensions
- Low cost of living
- Property taxes are among the lowest nationally
9. Georgia
- Excludes up to $65,000 per person of retirement income (age 65+)
- No Social Security tax
- Low property tax with senior exemptions
10. Pennsylvania
- Doesn’t tax Social Security, pensions, or IRA withdrawals for retirees
- Reasonable property taxes
- Retirement tax policies especially friendly for fixed-income seniors
State-by-State Tax Comparison Table
| State | Income Tax | Social Security | Pension/IRA Tax | Sales Tax | Property Tax | Estate/Inheritance Tax |
|---|---|---|---|---|---|---|
| Florida | ❌ None | ❌ Not Taxed | ❌ Not Taxed | 6% avg | Low | ❌ None |
| Wyoming | ❌ None | ❌ Not Taxed | ❌ Not Taxed | 4% avg | Very Low | ❌ None |
| Tennessee | ❌ None | ❌ Not Taxed | ❌ Not Taxed | 7% avg | Low | ❌ None |
| South Dakota | ❌ None | ❌ Not Taxed | ❌ Not Taxed | 4.5% avg | Low | ❌ None |
| Alaska | ❌ None | ❌ Not Taxed | ❌ Not Taxed | ❌ None | Moderate | ❌ None |
| Nevada | ❌ None | ❌ Not Taxed | ❌ Not Taxed | 6.85% avg | Moderate | ❌ None |
| New Hampshire | ❌ None | ❌ Not Taxed | ❌ Not Taxed | ❌ None | High | ❌ None |
| Mississippi | ✅ Yes | ❌ Not Taxed | ❌ Not Taxed | 7% avg | Very Low | ❌ None |
| Georgia | ✅ Yes | ❌ Not Taxed | ✅ Partially | 4% avg | Low | ❌ None |
| Pennsylvania | ✅ Yes | ❌ Not Taxed | ❌ Not Taxed | 6% avg | Moderate | ✅ Inheritance Only |
States to Avoid for Retirement (High Taxes)
While lifestyle, healthcare, and climate are important, some states are notoriously tax-unfriendly to retirees:
🛑 California
- High income tax rates (up to 13.3%)
- Taxed retirement income
- High sales and property taxes
🛑 New York
- Taxes retirement income above certain limits
- High property taxes
- State and local tax (SALT) burden very high
🛑 Connecticut
- One of the few states that taxes Social Security (above income thresholds)
- High income, property, and estate taxes
🛑 Vermont
- Taxes Social Security (partial exemption available)
- Income tax rates up to 8.75%
Additional Tax Considerations for Retirees
✔️ Senior Property Tax Exemptions
Many states offer property tax breaks or rebates for seniors, which can significantly reduce housing costs. Check local rules for homestead exemptions.
✔️ Estate and Inheritance Taxes
While federal estate tax only affects estates above $13.61 million (as of 2025), some states levy estate or inheritance taxes at much lower thresholds.
✔️ Healthcare Cost Deductions
In states with income tax, some allow you to deduct medical expenses or long-term care premiums.
Final Thoughts
Choosing the best state for retirement taxes can preserve your wealth, reduce financial stress, and provide a more comfortable retirement. While taxes shouldn’t be your only deciding factor, they play a crucial role—especially for those living on fixed incomes or managing large retirement portfolios.
🔑 Key Takeaways:
- States like Florida, Wyoming, and South Dakota offer no tax on retirement income.
- Look for a combination of low/no income tax, property tax relief, and tax-free Social Security.
- Avoid states that tax pensions, IRAs, and have high estate/inheritance taxes.
- Consider your full financial picture, including cost of living and healthcare.
Frequently Asked Questions (FAQs)
Q1: What state has the lowest taxes for retirees?
A: Florida and Wyoming are among the lowest, with no state income tax and no taxation on retirement income.
Q2: Which states don’t tax Social Security benefits?
A: 38 states, including Florida, Texas, and Pennsylvania, do not tax Social Security income.
Q3: Should taxes be the only factor when choosing where to retire?
A: No. Consider healthcare access, cost of living, family, and lifestyle preferences in addition to taxes.
Q4: What’s the worst state for retirement taxes?
A: States like California, Vermont, and Connecticut often rank poorly due to high income and estate taxes.