Tax-Friendly States for Retirees
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Most and Least Tax-Friendly States for Retirees

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Tax-Friendly States for Retirees
Dean Mitchell/istockphoto

retirement ranked

Tax season takes a bigger bite out of retirement in some states than in others, but that doesn't mean you should flee to a low-tax state. Recent tax reform capped the amount of state or local income tax, property tax, or sales tax that taxpayers can deduct at $10,000 from 2018 through 2025. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don't have state income tax, but retirees also need to consider taxes on sales, Social Security, retirement distributions, property, estates, and inheritance. That effective tax rate is what makes some states retirement havens and others a drain on retiree resources. With the help of data compiled by the folks at Kiplinger, GoBankingRates, and WalletHub, we took a look at the tax burden for retirees in each state and found the 10 best and worst for retirement living.

10. Best: Georgia
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tenth best: georgia

It's just north of Florida, but Georgia has become a retirement destination all its own. Georgia doesn't impose either an estate or inheritance tax, has an average state and local sales tax of 7.23 percent, and has state income tax ranging from 1 percent (on the first $750 of taxable net income for single filers or $1,000 for joint filers) to 6 percent (on taxable income over $7,000 for single filers or $10,000 for joint filers), according to Kiplinger. Social Security income is exempt from state taxes, as is up to $35,000 of most types of retirement income (pensions, annuities, interest, dividends, net income from rental property, capital gains, royalties, and the first $4,000 of earned income). For those 65 and older, the exemption is $65,000 per taxpayer, or $130,000 per couple.

9. Best: Kentucky
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9th best: kentucky

Social Security benefits and up to $31,110 per person of retirement income from IRAs, 401(k)s, private pensions, and annuities are exempt from taxes here. There is an additional exclusion for qualified military, civil service, and state and local government pensions, but Kentucky also has a homestead exemption on qualifying single-unit residential property. For homeowners 65 and older or the totally disabled, $37,600 of the assessed value of their property is exempt from state taxes. Though Kentucky has a flat income tax of 5 percent and average sales tax of 6 percent, it has no inheritance tax.
8. Best: New Hampshire
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8th best: new hampshire

The "Live Free or Die" state motto means there's no income tax, no sales tax, no inheritance tax, no estate tax, and no taxes on Social Security benefits, pensions, or retirement distributions. There's a 5 percent tax on stock dividends (with up to $1,200 exempt for those over 65) and the median property tax on New Hampshire's median home value of $239,700 is $5,241, the third-highest in the U.S. But there is a property-tax exemption available to those age 65 and older who have lived in New Hampshire for at least five years. Towns and cities set those rules, but the minimum exemption is $5,000 a year.
7. Best: Nevada
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7th best: nevada

No income tax, no estate tax, and no inheritance tax mean your retirement savings go a long way here. Though the average sales tax exceeds 8 percent, groceries are exempt. Finally, the median property tax on the state's median home value of $191,600 is $1,478, though there are no property tax breaks for seniors.
6. Best: Pennsylvania
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6th best: pennsylvania

Yes, there's a 3.07 percent state income tax, but Social Security benefits, pensions, and retirement distributions are tax exempt. Even local taxes apply only to earned income, and the average 6.34 percent sales tax doesn't apply to clothing and nonprescription drugs. But the median property tax on the median home value of $167,700 is $2,603 — the 13th-highest in the country — and a state inheritance tax applies broadly.
5. Best: Florida
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5th best: florida

How is Florida not No.1? It has no state income tax, no estate tax, no inheritance tax, and a bunch of exemptions for people over 65. Retirees can get a property tax exemption of up to $50,000 from some city and county governments and/or an exemption equal to the assessed value of the property — if the property is worth $250,000, the homeowner has lived there for at least 25 years, and household income does not exceed $29,454. Widowers can claim an additional $500 exemption. But the median property tax on the median home value of $166,800 is $1,702, and state sales taxes average 6.8 percent and can climb as high as 8 percent.
4. Best: Mississippi
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4th best: mississippi

Admittedly, it doesn't look good on paper. The maximum 5 percent state income tax applies to income of $10,000 or more, while the average sales tax exceeds 7 percent (and includes groceries). But Mississippi exempts Social Security, pensions, and retirement distributions from income tax, and the median property tax on the median home value of $105,700 is $841 — well below the U.S. average.
3. Best: South Dakota
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3rd best: south dakota

No state income tax means Social Security benefits and retirement income are all tax-exempt in South Dakota, points out GoBankingRates. There's no estate or inheritance tax, but South Dakota loses points for applying an average 6.4 percent sales tax to groceries, nonprescription drugs, services, and online purchases from out-of-state retailers. Oh, and the median property tax on the median home value of $146,700 is $1,943, which is the 16th-highest in the country.

2. Best: Wyoming
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2nd best: wyoming

This state has fewer residents than many U.S. cities, but oil and mineral revenues are such that it doesn't have to charge an income tax, an estate tax, or an inheritance tax. The average sales tax is 5.39 percent, but seniors who meet income requirements can get refunds of $800 to $900. Meanwhile, the median property tax on the state's median home value of $199,900 is $1,223, the nation's ninth-lowest.
1. Best: Alaska
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best: alaska

There is no income tax, no state sales tax, and in Anchorage and Fairbanks there's no local sales tax. When local sales tax is applied, it averages 1.43 percent. There's no inheritance tax, no estate tax, and all permanent residents who live there more than one year get a piece of the state's oil dividends ($1,600 last year). The median property tax on the median home value of $257,100 is $3,048, which isn't great, but homeowners 65 and older (or surviving spouses 60 and older) are exempt from municipal taxes on the first $150,000 of assessed value of their property.
10. Worst: Wisconsin
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tenth worst: wisconsin

Though Wisconsin shuns estate and inheritance tax, its average sales tax is 5.44 percent and state income tax ranges from 4 percent (on up to $11,450 of taxable income for singles or up to $15,270 for married couples) to 7.65 percent (on taxable income over $252,150 for singles or over $336,200 for married couples). Median property taxes are the fifth-highest, with taxes on the median home value of $167,000 reaching $3,257. Social Security benefits are exempt from taxes, but the majority of income from pensions, annuities, and distributions from IRAs and 401(k) plans are taxable.
9. Worst: Indiana
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9th worst: indiana

Indiana likes to consider itself retiree-friendly because it exempts Social Security benefits, military pensions, and federal civil service pensions from taxes. But IRAs, 401(k) plans, and private pensions are taxable. Though the flat state tax is just 3.23 percent, counties can tack on up to 3.38 percent more. Homeowners 65 and older who earn $25,000 or less (combined for a married couple) are eligible for a tax reduction on property with an assessed value of $182,430 or less, but the average 7 percent state sales tax applies across the board.
8. Worst: Maryland
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8th worst: maryland

Everything is taxed here. Maryland is the only state with both an estate and inheritance tax, and that's on top of an average 6 percent sales tax and state income tax ranging from 2 percent (on less than $1,000 of taxable income) to 5.75 percent (on more than $250,000 of taxable income for single filers or $300,000 for joint filers). Retirement distributions are taxable and both counties and the city of Baltimore can levy income taxes between 1.75 percent and 3.2 percent of taxable income. Maryland doesn't tax Social Security benefits and offers an exclusion of up to $30,600 on distributions from 401(k), 403(b), and 457 plans, along with income from public and private pensions. But the median property tax on Maryland's median home value of $290,400 is $3,191, though that gets much higher in the D.C. suburbs.
7. Worst: Utah
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7th worst: utah

No, Utah doesn't charge an estate or inheritance tax, but it taxes just about everything else. Social Security benefits and all retirement distributions are subject to the state's 4.95 percent flat tax. An average 6.78 percent sales tax doesn't include a 3 percent tax on groceries. The good news? The median property tax on Utah's median home value of $224,600 is $1,508 — well below the national average — and residents 65 and older may be able to claim a retirement income tax credit of up to $450 per person, depending on income.
6. Worst: New Mexico
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6th worst: new mexico

Social Security, pensions, and retirement distributions are all subject to state income taxes of 1.7 percent (on up to $5,500 of taxable income for single filers or $8,000 for married couples filing jointly) to 4.9 percent (on taxable income over $16,000/$24,000). Residents over 65 can get an exemption of up to $8,000, but have to make less than $28,500 per person or $51,000 per couple. Though the average 7.78 percent sales tax is steep, the median property tax on New Mexico's median home value of $161,600 is $1,232 — well below the U.S. average. Our favorite tax incentive? If you live to 100, income tax is waived completely.
5. Worst: Nebraska
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5th worst: nebraska

Nebraska's state income tax maxes out at 6.84 percent, but it takes only $30,420 for single filers and $60,480 for married couples filing jointly to get there. Worse, it applies to Social Security income if you make more than $43,000 (or $58,000 for couples) and falls on top of a property tax that's the seventh-highest in the country. The average sales tax rate is 6.89 percent, while inheritance tax ranges from 1 percent to 18 percent.
4. Worst: Vermont
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4th worst: vermont

The state income tax here ramps up from 3.35 percent (on income of less than $38,700 for individual filers or $64,600 for joint filers) to 8.75 percent (more than $195,450 for individuals or $237,950 for joint filers). The average sales tax is 6.15 percent, but you'll pay 9 percent on prepared meals or hotel rooms and 10 percent on beer and wine. Social Security benefits for single residents with income over $45,000 or married couples with income over $60,000 is taxed, and the median property tax on the state's median home value of $218,900 is $3,893 — the eighth-highest rate in the country. Meanwhile, if you leave behind an estate worth more than $2.75 million to anyone but your spouse, the top estate tax rate is 16 percent.
3. Worst: Kansas
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3rd worst: kansas

Huge budget deficits led to tax hikes in 2017. The state's maximum income tax of 5.7 percent applies to anyone making more than $30,000 or any couple making more than $60,000. Pensions and retirement distributions are taxed fully, as is Social Security for individuals making more than $75,000. Though military, civil service, and in-state public pensions are exempt from state income taxes, everyone pays the average 8.68 percent sales tax. The median property tax on Kansas' median home value of $135,300 is $1,890.
2. Worst: Connecticut
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2nd worst: connecticut

Social Security benefits are taxable for residents with income of more than $50,000 or married couples making more than $60,000. Retirement plans, private pensions, and out-of-state government and federal civil service pensions are taxed fully at between 3 percent and 6.99 percent, though military pensions are excluded from state taxes. The median property tax on Connecticut's median home value of $269,300 is $5,443, the fourth-highest in the nation, while the 6.35 percent sales tax jumps to 7.75 percent for clothing, footwear, and accessories priced at more than $1,000 and luxury items (such as jewelry) worth more than $5,000. Yes, there's an estate tax here, but there's also a gift tax for anything given over $2.6 million.
1. Worst: Minnesota
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worst: minnesota

State income tax ranges from 5.35 percent (on taxable income of less than $25,890 for single filers or $37,850 for joint filers) to 9.85 percent (on taxable income of $160,020 for single filers or $266,700 for joint filers). Average sales tax is 7.43 percent, though food, clothing, and medication are exempt. Pensions and retirement plan distributions are taxable, as is Social Security (though the first $4,500 is exempt for those making less than $77,000 annually). The median property tax on Minnesota's median home value of $191,500 is $2,234, which is above the national average, and estates valued at more than $2.4 million are subject to a 16 percent estate tax.