tax-friendly states for retirees

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December 2, 2022

12 Tax-Friendly States for Retirees

In Retirement, Wealth Strategy

Hilary Clark
Contributions from: Hilary M. Clark

Congratulations if you are retired or if retirement is imminent – extended relaxation is just around the corner! Thoughts of retirement bring up important questions like when and where? What would your home look like if not tethered to a neighborhood by your office commute or kids’ school district? There might be great places to live where the state taxes are greener and more retirement-friendly. Is there a utopia that could provide excellent post-work living and favorable tax benefits? If you’re open to exploring a new place to live, and taxes are top of mind, here are the top 12 retirement states for the tax-minded retiree.

Alabama

While most famous for Crimson Tide football, fantastic barbecue, and peanut farming, Alabama is also a retiree-friendly state. Let’s start with what’s not in the state: no tax on Social Security, no estate tax, and no inheritance tax.

Other benefits:

  • Income tax is between 2-5%, graduated.
  • Sales tax averages 9.24%, a combination of a 4% state levy and a 5.24% average local tax rate
  • Median property tax is $1,025 per $250,000 of assessed home value

Alaska 

Still known for its independent thinking and sweeping woodlands, Alaska also leads the list with many incentives for those on a fixed income. If you can brave the cold (and extreme daylight/nighttime swings in summer and winter), retired Alaskans enjoy no state income tax, no taxes on social security, no estate nor inheritance tax. That’s a lot of cost-saving “no’s,” making Alaska a huge YES for retirees!

Quick tax info:

  • State sales tax is hovering just below 2% (1.76% on average).
  • The median property tax is $3,025 per $250,000 assessed home value.

Arizona

Ah, the snowbird effect. There is a reason why the population of Scottsdale has almost doubled since 1990. It’s not just the winter temperature averaging around 70 degrees. While not taxing Social Security levying estate or inheritance taxes, Arizona has additional tax breaks for retirees, regardless of the weather.

  • In 2023, state income tax is a flat rate of 2.5%
  • Sales tax is 8.37% combined rate (5.6% state levy, 2.77% average local tax rate)
  • Median property tax is $1,600 per $250,000 of assessed home value*

Colorado

If mountains are your thing, Colorado could be the state for you. No estate and inheritance taxes make things easier for your beneficiaries, while CO residents keep taxes low and predictable for those on a fixed income.

  • State income tax is a flat rate of 4.55%
  • Partial taxation on Social Security benefits
  • Sales tax is 7.77% combined rate (2.9% state levy, 4.87% average local tax rate)
  • Median property tax is $1,275 per $250,000 of assessed home value*

Delaware

Small but mighty, Delaware isn’t just a great place to incorporate your business; it’s also a great place to retire. No tax on Social Security benefits, sales tax, estate tax, and inheritance tax make Delaware an easy place to be.

  • State income tax has a graduated rate ranging from 2.2% – 6.6%
  • Median property tax is $1,425 per $250,000 of assessed home value*

Florida

Florida has the spot for you if you like tradition, warm beaches, and retirement communities. There is no state income tax, inheritance, estate, or Social Security benefits taxing either. Florida has been the retirement state of choice for decades and keeps retirees in mind when generating state income.

  • Sales tax is 7.01% combined rate (6% state levy, 1.01% average local tax rate)
  • Median property tax rate is $2,150 per $250,000 of assessed home value*

Nevada 

Not just Vegas, baby; Nevada is also an excellent idea for the newly retired. Like many states above, there is no state income tax, no tax on Social Security benefits, no estate tax, and no inheritance tax.

  • Sales tax is 8.23% combined rate (6.85% state levy, 1.38% average local tax rate)
  • The median property tax is $1,425 per $250,000 of assessed home value

New Hampshire 

You can “live free or die” in New Hampshire, but even better for retirees, you can benefit by being free from state tax, Social Security benefits tax, sales tax, estate tax, and inheritance tax. Freedom from all these truly has New Hampshire putting its money where its motto is

  • The median property tax is $5,325 per $250,000 assessed home value.

South Carolina

Sip on your sweet tea and challenge yourself to eat a Carolina Reaper (the world’s hottest pepper) while enjoying no estate tax, no inheritance tax, and no taxes on social security benefits! South Carolina also has beautiful beaches and diverse ecosystems, and retirees are welcome.

  • State income tax is graduated rates, ranging from 0% – 7%
  • Sales tax is 7.44% combined rate (6% state levy, 1.44% average local tax rate)
  • Median property tax is $1,425 per $250,000 of assessed home value*

Tennessee

In Tennessee, retirees enjoy a lively country music tradition, exploring Elvis’ Graceland and sipping local whiskey without worrying about state income tax, estate taxes, inheritance tax, or any taxation on your Social Security benefits.

  • Sales tax is 9.55% combined rate (7% state levy, 2.55% average local tax rate)
  • Median property tax is $1,725 per $250,000 of assessed home value*

Texas

The Lone Star State wants you to retire like JR Ewing – all big sky and ten-gallon hats! There is no state income tax, estate tax, inheritance tax, or taxes on Social Security benefits to cramp your style.

  • Sales tax is 8.2% combined rate (6.25% state levy, 1.95% average local tax rate)
  • Median property tax is $4,375 per $250,000 of assessed home value*

Wyoming

The least-populous state of Wyoming sounds alluring for many nature-minded introverts – few neighbors, great tax incentives, and outdoor adventuring in their seven (!) National Parks. What you won’t find when you’re skiing or looking for dinosaur bones is state income tax, inheritance tax, estate tax, or any taxes on your Social Security benefits because there are none.

  • Sales tax is 5.36% combined rate (4% state levy, 1.36% average local tax rate)
  • Median property tax is $1,525 per $250,000 of assessed home value*

Before retiring to a new state, consult with a financial advisor and tax professional. Many states have requirements around gaining resident status and benefiting from the estate and inheritance tax exemptions. A Coldstream advisor can help evaluate your financial situation and determine a course of action specific to you.

* State has property tax breaks for retirees

Sources:
Washington Property Tax Calculator
State By State Guide to Taxes on Retirees
https://taxfoundation.org/publications/state-and-local-sales-tax-rates/#Combined

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