The Most Tax Friendly States for Retirees in 2024

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Editor’s Note: This story originally appeared on NewRetirement.

Looking for a great place to retire? Or, wondering if the state where you live is too expensive? Property values, cost of living and lifestyle issues are all important considerations when figuring out where to live.

However, don’t forget to think about state taxes. Some states are more tax-friendly for retirement than others. Explore more about retirement taxes, discover the best states for taxes and review the income and sales tax rates.

You could save significant money over your lifetime by really considering where you live and the location’s taxes.

What Are the Different Kinds of Taxes Imposed by States

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Not only are income tax rates different in every state, but different locations have different kinds of taxes.

  • State Income Tax: Income tax is usually the biggest concern.
  • Interest and Dividends: Some states charge little in income taxes, but more for interest and dividends on assets.
  • Sales Taxes: Sales taxes are usually made up of a combination of state sales tax and local sales tax.
  • Property Taxes: Property taxes, in addition to property values, can be dramatically different depending on your location. You will need to consider the property tax rate as well as the cost of the property.
  • Estate Taxes: And, estate taxes also vary greatly from state to state, but most states do not tax your financial legacy.
  • Taxes on Social Security and Pensions: Very few states tax Social Security and pensions.

So Which Are the Best States for Retirement Taxes Overall?

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The absolute best state for retirement taxes will depend a bit on your own financial profile.

For example: If you will be leaving behind significant assets to heirs, avoid states with major estate taxes. Or, if you have valuable assets and will be earning sizable returns, then you might want to look for states with low taxes on interest and dividends.

However, the following are some insights into low and high state taxes overall.

Low Tax States

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According to the latest analysis from USA Facts, here are five of the states best for overall retirement taxes.

Their analysis looks at tax revenue as a percentage of personal income in order to account for the differences in average incomes nationwide. (This is different from comparing tax rates, which is a percentage of each dollar that is collected by the state or local government for each tax category.)

  • Alaska at 5.4%
  • Tennessee at 6.3%
  • New Hampshire at 6.4%
  • Wyoming at 6.6%
  • Florida at 6.7%

High Tax States

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The USA Facts data ranks these five states as having the highest state and local tax burden:

  • New York at 13.1%
  • Hawaii at 13%
  • Maine at 11.2%
  • Vermont at 10.4%
  • Connecticut at 10%

Income Taxes by State

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As of the start of 2024, seven states have zero income tax: Nevada, Wyoming, South Dakota, Texas, Florida and Tennessee.

California has the highest income tax rate at 13.3% and the lowest is in Arizona and North Dakota at 2.5%.

Sales Taxes by State

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According to the Tax Foundation, in 2023 the five states with the:

  • Highest average combined state and local sales tax rates are Tennessee (9.548%), Louisiana (9.547%), Arkansas (9.44%), Washington (9.40%) and Alabama (9.24%).
  • Lowest average combined rates are Alaska (1.81%), Hawaii (4.44%), Wisconsin (5.43%), Wyoming (5.44%) and Maine (5.50%).

State Estate Taxes

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According to the latest compilation from the Tax Foundation, very few states have an estate tax.

Those that do include Washington, Oregon, Minnesota, Illinois, New York, Maine, Vermont, Rhode Island, Hawaii and Connecticut.

Maryland has both an estate and an inheritance tax.

State Taxes on Social Security and Pensions

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Social Security: Not all states tax Social Security, and for those that do, there are often exemptions or ways to reduce or eliminate the tax. You can get a complete rundown of Social Security state taxation here.

Pensions: According to reporting from AARP in 2021, Washington, Alaska, Nevada, Wyoming, South Dakota, Iowa, Illinois, Texas, Mississippi, Alabama, Tennessee, Florida, Pennsylvania and New Hampshire have no tax on pension distributions.

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