Best States to Retire In for Taxes (2026)

Every “best states for retirement” list starts the same way: rank the nine states with no income tax, call Florida the winner, move on. That framing is incomplete. Income tax is one of five tax layers that determine what you actually keep in retirement. Property tax, sales tax, estate and inheritance tax, and the tax treatment of specific retirement income (Social Security, pensions, 401(k)/IRA withdrawals) all shape the real number. A retiree in “no-income-tax” Texas who owns a $400,000 home pays roughly $7,000/year in property tax — more than a retiree with the same home value in many states that do levy income tax.

This guide covers all five layers, ranks states into tiers based on how they treat retirement income specifically, and flags the hidden costs that surface-level comparisons miss. cinder.fi models every state’s actual tax brackets, retirement income exemptions, and Social Security treatment — run your own state comparison to see the difference in your specific situation.

The Five Tax Layers That Matter in Retirement

Before comparing states, understand what you’re comparing:

1. State income tax — the headline number. Ranges from 0% (nine states) to 13.3% (California). But the rate itself tells you less than you’d think, because many states exempt specific retirement income.
2. Retirement income exemptions — some states with an income tax exempt pensions, Social Security, 401(k)/IRA withdrawals, or all of the above. A state with a 4.95% flat rate that exempts all retirement income (Illinois) can be more tax-friendly than a 0% state with high property taxes.
3. Social Security taxation — the federal government taxes up to 85% of Social Security benefits above certain income thresholds. Most states don’t add their own tax on top, but roughly a dozen still do.
4. Property tax — hits every homeowner regardless of income. Averages 1.1% nationally but ranges from 0.3% (Hawaii) to 2.2% (New Jersey). On a $350,000 home, that’s a $1,050 to $7,700 annual spread.
5. Estate and inheritance tax — twelve states plus DC levy an estate tax, and six states have an inheritance tax. If leaving wealth to heirs matters to your plan, this layer is significant.

A state that scores well on one layer can score poorly on another. The rest of this guide breaks down each tier with that full picture.

Tier 1: No State Income Tax (9 States)

Nine states levy no personal income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For retirees with large 401(k)/IRA balances, significant pension income, or plans for aggressive Roth conversions, these states eliminate the state tax layer entirely.

The top picks

Florida — The most popular retirement destination for a reason. No income tax, no estate tax, no inheritance tax. Florida’s homestead exemption ($50,000) and the Save Our Homes cap (3% annual assessment increase) make property taxes predictable for long-term residents. Effective property tax rates average around 0.8%, below the national average. The combination of no income tax, no estate tax, and moderate property taxes makes Florida the strongest all-around no-tax state for retirees.

Nevada — No income tax, no estate tax, no inheritance tax. Property taxes are low (effective rate around 0.5%) thanks to a tax cap that limits increases to 3% per year for primary residences. Sales tax is moderate at 6.85% state (plus local). Nevada is a strong tax pick, though the Las Vegas/Reno cost of living has risen sharply.

Wyoming — No income tax, no estate tax, no inheritance tax, and the lowest sales tax of this group at 4%. Property taxes are also low. Wyoming’s challenge is practical, not tax-related: sparse population, limited healthcare infrastructure, and harsh winters make it less suitable for retirees who need proximity to medical facilities.

Texas — No income tax, but Texas property taxes are among the highest in the country — averaging 1.6–1.8% of assessed value. On a $400,000 home, that’s $6,400–$7,200/year. A retiree with modest income and an expensive home can pay more in total Texas tax than they would in a state with income tax but low property tax. Texas also has no estate tax, and the 6.25% state sales tax (plus local additions up to 8.25% combined) is moderate.

Washington — No income tax on wages or retirement income, but Washington levies a 7% capital gains tax on long-term gains exceeding $270,000 per year. For most retirees, this won’t apply — but if you’re planning large asset sales, liquidating concentrated stock positions, or selling a business, Washington’s “no income tax” label comes with a meaningful asterisk. Sales tax is also high: 6.5% state plus local additions that push combined rates above 10% in Seattle.

New Hampshire — No tax on wages or retirement income, but New Hampshire has the third-highest property tax rate in the country (approximately 1.9% effective). On a $400,000 home, that’s $7,600/year. No sales tax is a plus, but the property tax burden makes New Hampshire expensive for homeowners.

Alaska — No income tax and no state sales tax. But Alaska is the most expensive state to live in — high cost of goods, limited healthcare options, and isolation. Alaska does pay residents an annual Permanent Fund Dividend ($1,312 in 2024), but it doesn’t offset the higher baseline cost. Some municipalities levy local sales and property taxes.

Tennessee and South Dakota — Both have no income tax and no estate tax. Tennessee has a 7% state sales tax (one of the highest) plus local additions. South Dakota has low property taxes and a moderate sales tax (4.5%). Both are straightforward, low-total-tax environments for retirees without the hidden costs that complicate Texas, New Hampshire, or Washington.

When Tier 1 doesn’t win

No-income-tax status matters most when your taxable retirement income is high — large 401(k)/IRA withdrawals, pension income, Roth conversions, or significant capital gains. If your retirement income is mostly Social Security and modest withdrawals, the income tax savings in a Tier 1 state may be small, and a Tier 2 state with low property taxes and exempt retirement income could leave you with more money.

Tier 2: States That Exempt Most or All Retirement Income

Several states have an income tax but exempt retirement income from it — making them functionally equivalent to no-income-tax states for most retirees.

Pennsylvania — Pennsylvania’s 3.07% flat income tax does not apply to distributions from 401(k), 403(b), IRA, or pension plans — they’re fully exempt. Social Security is also exempt. For a retiree whose income is entirely from retirement accounts and Social Security, Pennsylvania’s effective state income tax rate is 0%. Property taxes are moderate, and Pennsylvania has no sales tax on groceries or clothing. The catch: Pennsylvania has an inheritance tax (4.5%–15% depending on relationship to the deceased), so estate planning matters here.

Illinois — Illinois has a 4.95% flat income tax, but it exempts all retirement income — 401(k), IRA, pension, and Social Security distributions are not taxed. Earned income (wages, self-employment) is taxed. For retirees who are fully retired, Illinois is a zero-state-tax state in practice. Property taxes are high (effective rate around 2.1% — second highest nationally), which undercuts the income tax advantage for homeowners.

Mississippi — No state tax on retirement income, including Social Security, pensions, and qualified retirement plan withdrawals. Mississippi’s 5% income tax (on income above $10,000) applies to wages and business income. Low cost of living and low property taxes (effective rate around 0.8%) make it one of the most affordable retirement states in total. The trade-off is access to healthcare and infrastructure.

Iowa — Iowa is phasing to a 3.9% flat tax by 2026 and has been expanding retirement income exemptions. Pension and retirement account income is increasingly exempt. Social Security has been exempt since 2014. Iowa’s combination of low cost of living, moderate property taxes, and shrinking income tax burden makes it an increasingly attractive retirement state.

Tier 3: States That Don’t Tax Social Security

For retirees who rely heavily on Social Security, whether a state taxes those benefits can swing the math significantly. The federal government taxes up to 85% of Social Security benefits when combined income exceeds $34,000 (single) or $44,000 (married filing jointly). Most states don’t add their own tax on top.

As of 2026, the states that do still tax Social Security to some degree:

• Colorado — partial exemption; retirees 65+ can exclude up to $24,000 of Social Security and other retirement income
• Connecticut — partial exemption for lower incomes (AGI under $75,000 single / $100,000 joint)
• Kansas — taxes Social Security for AGI above $75,000
• Minnesota — partial subtraction available; phasing in more exemptions
• Missouri — exempts Social Security below $85,000 AGI ($100,000 joint)
• Montana — partial deduction available
• Nebraska — phasing out Social Security taxation entirely by 2025
• New Mexico — exempts Social Security for incomes under $100,000 ($150,000 joint)
• Rhode Island — exempts Social Security below $101,000 AGI ($126,250 joint)
• Utah — tax credit partially offsets Social Security taxation at lower incomes
• Vermont — exempts Social Security below $50,000 AGI ($65,000 joint)
• West Virginia — phasing out Social Security taxation (35% exempt in 2024, increasing annually)

This list is shrinking. Multiple states are actively phasing out Social Security taxation — check your target state’s current status. If you’re considering Colorado or any state in this list, cinder.fi applies the correct exemption and threshold for the current tax year.

Every other state — including all Tier 1 and Tier 2 states plus major retirement destinations like Arizona, North Carolina, Georgia, South Carolina, and Virginia — does not tax Social Security at the state level.

The Hidden Costs: What “No Income Tax” Doesn’t Tell You

The biggest mistake in state tax comparisons is equating “no income tax” with “lowest taxes.” Three examples:

Property tax offsets

Texas and New Hampshire have no income tax but some of the highest property taxes in the country. A retired couple in Texas with a $450,000 home and $80,000/year in retirement income pays roughly $7,650 in property taxes and $0 in state income tax. The same couple in Arizona (property tax ~0.6%, income tax ~2.5% effective on their retirement income) pays roughly $2,700 in property taxes and ~$2,000 in state income tax — $4,700 total versus $7,650 in “no-income-tax” Texas.

Sales tax accumulation

Washington and Tennessee pair no income tax with high sales taxes (10%+ combined in major metro areas). A retiree spending $60,000/year with 40% subject to sales tax at a 10% combined rate pays $2,400/year in sales tax — $72,000 over a 30-year retirement. That’s not nothing.

Cost of living multiplier

Alaska has no income tax and no state sales tax, but the cost of living in Anchorage is roughly 25% above the national average. Groceries, healthcare, and housing all cost more. A retiree who “saves” $3,000/year in state income tax but spends $8,000/year more on living expenses hasn’t optimized anything.

Strategy: Timing Your Move

If you’re planning to relocate to a lower-tax state, timing the move relative to large financial events can save tens of thousands:

Roth conversions

If you’re doing a multi-year Roth conversion strategy, establish residency in the lower-tax state before beginning conversions. A $500,000 conversion ladder spread over 5 years costs $0 in state tax in Florida versus $46,500 in state tax in California (9.3% rate). Moving after your conversions are complete leaves that money on the table.

Pension lump sums and asset sales

One-time large distributions — a pension lump-sum rollover, sale of a business, liquidation of a concentrated stock position — are particularly sensitive to state tax. Timing these events to occur after establishing residency in a no-income-tax state can save 5–13% of the gross amount. Be aware that some states (California, New York) have aggressive residency audits. Clean breaks — selling the prior-state home, updating voter registration, driver’s license, and financial accounts — matter.

Social Security claiming

If you live in one of the ~12 states that still taxes Social Security and plan to move, consider whether your move will happen before or after you start claiming. Delaying Social Security until after the move avoids the state tax layer on benefits entirely. See our guide on Social Security spousal and survivor benefits for the claiming-age trade-offs.

Withdrawal sequencing

Your withdrawal order strategy should account for your state’s treatment of different income types. In a state that exempts retirement income but taxes capital gains (like Pennsylvania), drawing from 401(k)/IRA accounts first and preserving taxable brokerage assets makes more sense than the conventional wisdom.

The Full Picture: How to Choose

The best state for your retirement depends on the composition of your income, not just the headline rate:

• Large 401(k)/IRA balances → Tier 1 or Tier 2 states. The state income tax on $100K+ annual withdrawals is a major expense in high-tax states like California or New York.
• Primarily Social Security → almost any state works. Most don’t tax SS. Focus on property tax and cost of living instead.
• Significant pension income → check whether the state exempts pensions. Pennsylvania, Illinois, and Mississippi do. Most others don’t.
• Real estate wealth → property tax and estate tax matter more than income tax. Florida’s homestead exemption and no estate tax are a strong combination.
• Large estate for heirs → avoid the 12 states + DC with estate taxes and the 6 states with inheritance taxes. Florida, Texas, Nevada, and most Tier 1 states have neither.

How cinder.fi Helps

cinder.fi includes full tax engines for all 50 states plus DC — not estimates, not averages, but actual bracket structures, retirement income exemptions, and Social Security treatment applied to your specific income in each projected year. The US retirement calculator lets you select any state (or change states mid-projection to model a planned move) and see the year-by-year impact on taxes, withdrawals, and account balances.

The scenario comparison tool is particularly useful here: project the same retirement plan in two different states side by side and see the cumulative lifetime tax difference. A retiree choosing between California and Nevada can see not just the first-year difference, but the 30-year compounding effect of lower taxes on portfolio longevity.

Run your own comparison — try cinder.fi free.