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In a nutshell
There are a number of issues involved in deciding the best place to spend your retirement years. Some non-financial factors include:
- Climate.
- Proximity to family and friends.
- Local activities of interest to you.
- A rural or urban location, depending on your preference.
- Access to transportation such as a major airport or an interstate highway.
- Access to a hospital and medical services.
These and a host of other factors normally go into this decision. Access to high-quality banking services like those provided by Discover are important. Financial issues such as the general cost of living and the cost of housing are important. So is the tax situation for retirees.
These are the issues to consider regarding taxes:
- Is there a state income tax?
- Does the state tax Social Security benefits?
- Does the state tax withdrawals from retirement accounts such as 401(k)s and IRAs?
- Is income from private or public pensions taxed?
- How does the state stack up in terms of sales taxes?
- Is there an estate or inheritance tax?
- What is the level of property taxes? Do they offer any exemptions for seniors or others?
Let’s take a look at the ten best tax states for retirement.
1. Wyoming
Wyoming is considered to be very tax-friendly towards retirees.
There is no state income tax in Wyoming, which means that residents do not pay state taxes on distributions from retirement plan accounts, public or private pension payments or Social Security benefits. Wyoming also has no estate or inheritance taxes.
Additionally, Wyoming’s property tax rates rank as the 10th lowest in the U.S. Combined with relatively low property values compared to many other states, this helps decrease the cost of home ownership.
State sales taxes are low as well, ranking as the 4th lowest combined sales tax rate in the U.S. Groceries are exempt from sales taxes.
2. Nevada
Nevada is considered to be very tax-friendly toward retirees.
Nevada has no state income tax, meaning that withdrawals from retirement accounts are not subject to state income taxes. There are no state income taxes on Social Security benefits as well. Additionally, income from public and private pension payments is not subject to state income taxes.
Property taxes are among the lowest in the country as well, so this expense will be relatively low for retirees who own a home there. And Nevada has no inheritance or estate taxes.
Sales taxes are higher than the national average. There are important exemptions that could benefit seniors, including exemptions for prescription drugs, durable medical equipment, groceries, and newspapers.
 |  | |
|---|---|---|
| Federal filing fee | $0 to $219 for DIY | $0 to $195 for DIY |
| State filing fee | $0 to $64 for DIY | $0 to $50 for DIY |
| Tax assistance | Yes—Live Assisted | Yes - Online assist |
| View Offer | View Offer |
3. Florida
Florida is ranked as very tax-friendly toward seniors.
Florida has no state income tax. This means that there is no state income tax on Social Security benefits, distributions from retirement accounts such as IRAs or 401(k)s, or pension benefits from public or private pensions.
Property taxes are a bit lower than average, while the median home value is slightly higher than the national average. Florida offers a homestead exemption that allows homeowners to exempt certain amounts of their home’s assessed value from property taxes. Moreover, Florida does not have an inheritance or an estate tax.
Sales taxes in Florida are pretty much in line with the national averages. There are exemptions for prescription medications and groceries, generally two major monthly expenses for seniors.
4. Alaska
Alaska is rated as very tax-friendly for retirees.
Alaska has no state income tax. This means no taxes on Social Security benefits, income from public or private pensions, or from any income from employment or self-employment in retirement. Distributions from retirement accounts like IRAs and 401(k)s are also not taxed.
Property taxes are slightly higher than the national average. There is no statewide exemption, but some municipalities around the state allow homeowners to exempt a portion of their home’s value from their property tax calculation.
Most Alaska residents who have lived there for at least a year can benefit from the Alaska Permanent Fund, a sovereign wealth fund that pays dividends each year to eligible residents. This can offset some of their local tax liability.
There is no statewide sales tax in Alaska though some municipalities may assess a local sales tax. Even these are relatively low.
5. South Dakota
South Dakota is considered to be very tax-friendly towards retirees.
There is no state income tax in South Dakota. This means that there is no state income tax on Social Security benefits, distributions from retirement accounts such as IRAs or 401(k)s, or pension benefits from public or private pensions.
Property taxes are a bit higher than average, but this is offset by relatively low property values. Additionally, South Dakota offers programs to help some seniors reduce their property tax bills.
South Dakota offers a homestead exemption program that allows low-income seniors over the age of 70 the option to defer payment of their property taxes until they sell their home.
South Dakota’s sales taxes are moderate, and medical services and prescription drugs are not taxed, which is a benefit to seniors.
6. Georgia
Georgia is considered to be very tax-friendly for retirees.
Georgia does not tax Social Security benefits. However, withdrawals for retirement accounts like a 401(k) or IRA are partially taxed. The same applies to income from public and private pensions. For those who are aged 65 or older, there is a deduction of up to $65,000 per person on all types of retirement income, including retirement account distributions and pension income. This deduction is $35,000 for those who are ages 62-64.
Property taxes in Georgia are below national averages, In addition, the state offers a homestead exemption for all homeowners who occupy their property as their primary residence. This allows them to exclude a portion of the property’s assessed value from taxation. Low-income seniors who are 65 or older may be eligible for a double exemption.
Statewide sales taxes are low in Georgia, ranking 9th lowest of all states. The local sales taxes in some parts of the state increase this level to slightly above the national average. Georgia does not exempt sales taxes on groceries statewide, but some local municipalities do. Georgia has no estate tax.
7. Mississippi
Mississippi is ranked as very tax-friendly toward seniors.
Withdrawals from retirement accounts such as 401(k)s and IRAs are not taxed. Social Security benefits are also exempt from state income taxes, as is income from public and private pensions.
Property taxes are low. The median annual property tax bill for homeowners is $1,052, one of the lowest in the United States. This is likely due in part to the relatively low property values in Mississippi compared to the rest of the country. Mississippi offers a homestead exemption for all property owners based on meeting certain criteria. There is a bonus exemption for some seniors aged 65 and over as well.
The sales tax level across the state is 7%. While groceries are subject to sales taxes, prescription medications are exempt. Mississippi has no inheritance or estate tax.
8. Delaware
Delaware is tax-friendly for retirees.
Delaware does not tax Social Security benefits. Withdrawals from retirement accounts such as 401(k)s and IRAs are partially taxed. This also applies to income from private and public pensions. For those who are aged 60 or under, there is a $2,000 annual deduction against this income per person. The deduction increases to $12,500 for those who are 60 or older.
Delaware’s property tax rate is the seventh lowest in the U.S. This is partially offset by home values that are a bit higher than the national average.
There are no sales taxes on in-state purchases. This could mean significant savings on items like food and medications. There are no estate taxes in Delaware; this allows you to pass on more of your assets to your heirs.
9. Colorado
Colorado is rated as being tax-friendly for retirees.
Social Security benefits, income from public and private pensions, and withdrawals from retirement accounts like 401(k)s and IRAs are all partially taxed. Taxes on this income can be partially offset up to either a $20,000 or $24,000 deduction depending on age.
Property taxes are among the lowest in the U.S. For those who are at least aged 65 and who have owned their home for at least ten years, there is a property tax exemption of 50% of the first $200,000 of the home’s assessed value.
Colorado’s statewide sales taxes rank as among the lowest in the country, however, when local taxes in some areas are added in, the overall sales tax burden is higher than average. There are exemptions for groceries and prescription medications which help reduce the burden for seniors. Colorado does not have an estate or an inheritance tax.
10. Illinois
Illinois is rated as tax-friendly for retirees.
Social Security benefits, income from public and private pensions, and withdrawals from retirement accounts like 401(k)s and IRA are not taxed.
Property taxes in Illinois are quite high, among the highest in the country. There is a general homestead exemption that is available to all property owners depending upon their circumstances. For those who are aged 65 or over, there is a senior homestead exemption available to those with a household income of $65,000 or less.
Sales taxes in Illinois are also on the high side, though there is a discount on these taxes for food and medicine.
Illinois does have an estate tax with an exemption of $4 million. In some cases, this could lead to an estate owing taxes at the state level but not the federal level.
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The AP Buyline roundup
Taxes can be an important factor in deciding where to live in retirement, but for many, other considerations will override these tax issues. Quality of life, access to activities, proximity to family and friends and the climate are often more critical factors. But for retirees with tax concerns, this is a valid consideration. At the very least, it pays to understand the tax situation in any state you are considering.
It's also important to remember that the discussion above pertains only to income and other taxes at the state level. Retirees are subject to various federal taxes, and your financial and tax planning should take this into account.
AP Buyline’s content is created independently of The Associated Press newsroom. Our evaluations and opinions are not influenced by our advertising relationships, but we might earn commissions from our partners’ links in this content. Learn more about our policies and terms here.