State Taxes in Retirement: Where You Live Matters
Federal taxes get all the attention, but state taxes can take a significant bite out of your retirement income. Some states tax everything, others tax nothing, and many fall somewhere in between.
The Nine No-Income-Tax States
These states have no state income tax at all:
- Alaska
- Florida
- Nevada
- New Hampshire (dividends and interest only, phasing out)
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Living in one of these states means your Social Security, pension, IRA withdrawals, and investment income are all free from state income tax.
But watch out: No-income-tax states often have higher property taxes or sales taxes. Texas and Florida, for example, have property taxes well above the national average.
States That Don't Tax Social Security
Most states don't tax Social Security benefits. As of 2024, only these states tax Social Security:
- Colorado (partial exemption for 65+)
- Connecticut (income limits apply)
- Kansas (income limits apply)
- Minnesota
- Missouri (income limits apply)
- Montana (partial taxation)
- Nebraska (being phased out)
- New Mexico (income limits apply)
- Rhode Island (income limits apply)
- Utah (tax credit available)
- Vermont
- West Virginia (being phased out)
Retirement Income Tax Treatment by State
| Tax Treatment | Example States |
|---|---|
| No income tax | FL, TX, NV, WA, WY |
| Exempt retirement income | PA, MS, IL |
| Partial exemptions | GA, SC, VA, CO |
| Fully taxed | CA, NY, NJ, MN |
State-Specific Strategies
Pennsylvania
PA doesn't tax retirement income (401(k), IRA, pension distributions) regardless of amount. However, it does tax wages and investment income. Great for retirees, less so for those with significant taxable investment accounts.
Illinois
IL has a flat 4.95% income tax but exempts all retirement income—Social Security, pensions, 401(k), IRA. However, property taxes are among the highest in the nation.
Georgia
Retirees 65+ can exclude up to $65,000 of retirement income per person. Combined with relatively low cost of living, it's popular with retirees.
California
Top rate of 13.3% with no special treatment for retirement income. Your 401(k) distributions are taxed like any other income. However, California doesn't tax Social Security.
The Relocation Question
Moving to a tax-friendly state can save significant money, but consider:
- Total tax burden: Property tax, sales tax, and fees can offset income tax savings
- Cost of living: Low-tax states aren't always low-cost
- Quality of life: Climate, healthcare, family proximity matter
- Domicile rules: Your former state may still try to tax you if you maintain ties
How Talk Through Wealth Helps
Model the impact of state taxes on your retirement:
- Compare total tax burden across states
- See how different income sources are taxed in each state
- Model the impact of relocating in retirement
- Factor in property tax and cost of living differences
- Optimize withdrawal strategies based on your state
Compare State Tax Impact
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