Best States for Retirees: A Guide to Tax-Friendly Locations in 2024

Are you in search of the perfect place to retire? Or perhaps you’re concerned about the high cost of living in your current state? While factors like property values, cost of living, and lifestyle are important considerations, it’s crucial not to overlook state taxes when deciding where to live during your retirement years.

Some states are more tax-friendly for retirees than others, offering potential savings that can significantly impact your financial well-being over a lifetime. In this article, we will explore the concept of retirement taxes, discover the best states for taxes, and review the income and sales tax rates across all 50 states.

Income Tax: The Biggest Concern

When it comes to taxes, income tax is usually the primary concern for retirees. Each state has its own income tax rates, which can vary significantly. However, it’s important to note that different locations may also have different types of taxes.

Interest and Dividends: In some states, income taxes may be low, but taxes on interest and dividends from assets can be higher.

Sales Taxes: Sales taxes typically consist of a combination of state and local sales taxes. These rates can also differ from one location to another.

Property Taxes: Property taxes, in addition to property values, can vary dramatically depending on your location. It’s essential to consider both the property tax rate and the overall cost of the property.

Estate Taxes: Estate taxes also vary greatly from state to state. However, most states do not tax your financial legacy.

Taxes on Social Security and Pensions: Fortunately, very few states tax Social Security benefits and pensions.

The best state for retirement taxes will depend on your unique financial profile. For example, if you plan to leave behind significant assets to heirs, it’s advisable to avoid states with major estate taxes. On the other hand, if you have valuable assets and expect sizable returns, you may want to consider states with low taxes on interest and dividends.

Here are some insights into states with low and high tax burdens:

According to USA Facts data, the following five states have the highest state and local tax burden:

  • State A
  • State B
  • State C
  • State D
  • State E

As of the start of 2024, seven states have zero income tax: Nevada, Wyoming, South Dakota, Texas, Florida, and Tennessee. On the other end of the spectrum, California has the highest income tax rate at 13.3%, while Arizona and North Dakota have the lowest rates at 2.5%.

When considering property tax rates, it’s important to remember that a low rate on an expensive property may still result in higher overall tax payments compared to a high rate on a lower-value home. The Tax Foundation provides data on median property taxes paid by county as of 2021.

While only a few states have an estate tax, it’s worth noting that Washington, Oregon, Minnesota, Illinois, New York, Maine, Vermont, Rhode Island, Hawaii, and Connecticut are among those that do. Maryland, on the other hand, has both an estate and an inheritance tax.

Not all states tax Social Security benefits, and even in states that do, there are often exemptions or ways to reduce or eliminate the tax. For a comprehensive rundown of Social Security state taxation, you can refer to the relevant resources.

Filing taxes for a single year can feel overwhelming, let alone planning for taxes throughout your retirement. However, with the help of financial planning tools like the Basic Planner or PlannerPlus, you can gain a clearer understanding of your projected lifetime taxes and strategize ways to minimize this burden.

Retirement should be a time of relaxation and peace of mind. By considering the tax implications of different states, you can ensure that your retirement years are not only financially secure but also tax-friendly.