When planning for retirement, most people focus on lifestyle, healthcare, and climate. But retirement taxes can quietly erode your savings if you overlook them. Some states tax pensions, IRAs, or even Social Security, while others offer generous exemptions or no income tax at all.
In this guide, we break down the best states for retirement taxes in 2025, so you can stretch your nest egg further and retire with peace of mind.
🧾 Why State Taxes Matter in Retirement
Even if you’ve saved and invested wisely, where you live in retirement plays a major role in how far your income goes. Here’s why taxes matter:
- State income taxes can reduce monthly income from Social Security, pensions, or investments.
- Sales and property taxes affect everyday costs like groceries, fuel, and homeownership.
- Estate and inheritance taxes can impact wealth transfer to your loved ones.
By choosing a tax-friendly retirement state, you can keep more of what you’ve earned.
📊 What Makes a State Tax-Friendly for Retirees?
Let’s define the key factors that contribute to a retirement-friendly tax environment:
| Tax Category | Ideal Scenario for Retirees |
|---|---|
| Income Tax | No income tax or full exemptions for retirees |
| Social Security Tax | Not taxed by the state |
| Pension/IRA Taxation | Exempt or partially exempt |
| Sales Tax | Low rates, no tax on essentials |
| Property Tax | Low effective rates or senior exemptions |
| Estate Tax | No estate or inheritance tax |
🏆 Top 10 Best States for Retirement Taxes (2025)
1. Florida
- No state income tax
- Social Security, IRA, and pension income not taxed
- Generous Homestead Exemption on property taxes
- Popular with retirees for sunshine and tax savings
Why it’s great: Florida is consistently among the top retirement destinations for its tax-free income and low property taxes for seniors.
2. Wyoming
- No state income tax
- Social Security and retirement income fully tax-free
- Low property taxes and no estate tax
- Stunning natural beauty and low population
Bonus: Sales tax is also moderate at around 4-5%.
3. Tennessee
- No state income tax
- Social Security and retirement income exempt
- Reasonable property taxes
- Cost of living is below national average
Note: As of 2021, Tennessee fully repealed its Hall income tax, making it more retiree-friendly.
4. South Dakota
- No state income tax
- Retirement distributions and Social Security not taxed
- Low property and sales taxes
- No estate or inheritance taxes
Why it stands out: A fiscally responsible state with excellent tax laws for retirees.
5. Nevada
- No income tax
- No tax on Social Security or pensions
- Slightly higher sales tax, but property taxes are manageable
- Sunny climate and growing retiree population
6. Alaska
- No income or sales tax
- Annual oil dividend for residents through the Permanent Fund
- Higher costs of living and harsh winters, but lowest total tax burden
Fun fact: Some retirees enjoy Alaska summers and spend winters elsewhere.
7. Mississippi
- No tax on retirement income, including 401(k), IRA, and pensions
- Social Security income is also tax-free
- Low property taxes and cost of living
Downside: Healthcare and infrastructure rank lower than national average.
8. Georgia
- Exempts up to $65,000 per person in retirement income for those 65+
- No Social Security tax
- Homestead exemptions reduce property taxes
Why it’s rising in rank: Georgia is becoming a magnet for budget-conscious retirees in the Southeast.
9. New Hampshire
- No tax on wages or retirement income
- No sales tax
- High property taxes, but offset by other exemptions
- Tax on interest/dividends is being phased out by 2027
10. Pennsylvania
- Doesn’t tax Social Security, pensions, or IRA withdrawals
- Moderate property taxes
- No estate tax for direct heirs
Best for: Middle-income retirees looking to avoid income taxes while staying near family in the Northeast.
📌 State-by-State Tax Comparison Table (2025)
| State | Income Tax | Social Security Tax | Pension/IRA Tax | Sales Tax | Property Tax | Estate 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 |
| Nevada | ❌ None | ❌ Not Taxed | ❌ Not Taxed | 6.85% avg | Moderate | ❌ None |
| Alaska | ❌ None | ❌ Not Taxed | ❌ Not Taxed | ❌ None | Moderate | ❌ None |
| Mississippi | ✅ Yes | ❌ Not Taxed | ❌ Not Taxed | 7% avg | Very Low | ❌ None |
| Georgia | ✅ Partial | ❌ Not Taxed | ✅ Partial | 4% avg | Low | ❌ None |
| New Hampshire | ❌ None | ❌ Not Taxed | ❌ Not Taxed | ❌ None | High | ❌ None |
| Pennsylvania | ✅ Yes | ❌ Not Taxed | ❌ Not Taxed | 6% avg | Moderate | ✅ Yes (limited) |
🚫 States to Avoid for Retirement (High Taxes)
If tax savings are your top priority, you may want to avoid the following states:
❌ California
- High income tax rates (up to 13.3%)
- Retirement income may be taxed
- High property and sales taxes
❌ Vermont
- Taxes Social Security for many residents
- High income and property tax rates
❌ Connecticut
- Taxes retirement income
- High estate and inheritance taxes
❌ Minnesota
- Taxation of Social Security and other retirement income
- High overall tax burden
🏠 Property Tax Exemptions for Seniors
Many states offer homestead exemptions, freezes, or rebates for homeowners age 65 and older.
| State | Senior Property Tax Benefit |
|---|---|
| Florida | Homestead Exemption up to $50,000 |
| Georgia | School tax exemption for 62+ |
| Texas | Freeze on school taxes for 65+ |
| South Carolina | Exemption on first $50,000 of home value |
📜 Estate and Inheritance Taxes: What to Know
Only a few states levy an estate or inheritance tax, which can impact legacy planning.
- Estate Tax States: MA, OR
- Inheritance Tax States: PA, NE, MD, KY, IA
If you’re planning to pass on wealth, choose a state with no estate/inheritance tax to maximize your legacy.
✅ Final Thoughts: How to Choose the Right State
While taxes are just one piece of the puzzle, they can add up to thousands of dollars saved annually.
🔑 Tips for Picking a Retirement-Friendly State:
- Look beyond just income taxes. Consider property, sales, and estate taxes too.
- Evaluate healthcare access, cost of living, and climate.
- Check for senior-specific exemptions in your chosen state.
- Consider your income sources (pensions, IRA, Social Security) and how each will be taxed.
📌 FAQ: Best States for Retirement Taxes
Q1: Which state is the most tax-friendly for retirees?
A: Florida, South Dakota, and Wyoming are consistently ranked among the most tax-friendly states for retirees.
Q2: Which states don’t tax Social Security benefits?
A: 38 states don’t tax Social Security, including Florida, Texas, Nevada, and Pennsylvania.
Q3: What states have no income tax at all?
A: Florida, Texas, Wyoming, South Dakota, Nevada, Washington, and Alaska.
Q4: Should taxes be the only factor when choosing where to retire?
A: No, also consider healthcare access, cost of living, climate, and proximity to family.