Best and Worst States for Retirement Taxes (2026 Rankings)
Moving to the right state before you retire can save you $5,000 to $20,000 per year in taxes, more than most people save by obsessing over fund expense ratios. This 2026 ranking of the best states for retirement taxes cuts through the noise with real numbers, because 'no income tax' doesn't always mean what retirees think it means.
How We Ranked States for Retirement Tax Friendliness
We scored all 50 states on four criteria that actually move the needle for retirees: (1) state income tax rate on ordinary retirement income, (2) Social Security benefit taxation, (3) pension and 401(k)/IRA withdrawal treatment, and (4) property and sales tax burden as a secondary factor.
No single number tells the whole story. A state with zero income tax can still take a significant bite through high property taxes or sales taxes. Conversely, some states with a headline income tax rate exempt nearly all retirement income, making them friendlier than their rate suggests.
Our benchmark retiree: a couple filing jointly with $80,000 in annual income split roughly as $30,000 Social Security, $25,000 traditional IRA/401(k) withdrawals, and $25,000 pension or investment income. This is close to the median retirement income profile for a dual-income household in 2026. All dollar figures are state income tax only and exclude federal tax, which is identical regardless of where you live.
The 9 No-Income-Tax States: How They Stack Up for Retirees
Nine states charge zero state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For our benchmark couple, that's a complete state income tax bill of $0 on wages, IRA withdrawals, and pension income.
But the differences matter. New Hampshire taxes interest and dividend income at 3% through 2024, though that rate is fully phased out as of 2025, making it a clean no-income-tax state now. Washington state imposes a 7% capital gains tax on long-term gains above $262,000 (2024 threshold, adjusted annually), which can surprise retirees who plan to sell a business or a large investment portfolio.
For pure income-tax-free retirement living, Florida and Nevada remain the strongest all-around picks. Both have no income tax, no estate tax, and relatively low property tax effective rates for homesteaders (Florida's homestead exemption can reduce assessed value by up to $50,000). Texas offers no income tax but property taxes average roughly 1.6% of home value, among the highest in the nation, which can cost a homeowner $8,000 per year on a $500,000 home.
Bottom line formula: State income tax savings = (ordinary income + taxable SS + pension) x state marginal rate. For our benchmark couple in California (9.3% on income above roughly $68,000 for joint filers in 2026), the estimated state income tax bill is approximately $5,000 to $7,000 per year. Moving to Florida saves that entire amount, every year.
States That Tax Social Security Benefits: A Hidden Retirement Cost
Thirteen states taxed Social Security benefits as of 2025: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, West Virginia, and Kansas. The rules vary widely and change frequently; Missouri and Nebraska, for example, both phased out their Social Security taxes entirely by 2024, and West Virginia completed its phase-out in 2026.
As of 2026, the states that still tax Social Security to a meaningful degree include Minnesota, Vermont, Utah, Connecticut, and Colorado, though each has income thresholds below which benefits are fully or partially exempt.
Minnesota is the most aggressive: it mirrors the federal provisional income formula, meaning up to 85% of your Social Security can be subject to state income tax (top rate 9.85%) above certain thresholds. For a couple with $80,000 income, this can mean roughly $2,000 to $3,500 in additional annual state tax purely on Social Security.
Colorado exempts the first $24,000 of Social Security per person for residents 65 and older (as of 2025 tax law), significantly softening the blow. Utah offers a nonrefundable retirement tax credit that phases out at higher incomes, partially offsetting Social Security taxation.
The practical rule: if Social Security makes up more than 30% of your retirement income, Social Security taxation policy should be a top-three filter when evaluating states.
States With the Best Pension and IRA/401(k) Exemptions
Several states with a headline income tax rate exempt significant pension and retirement account income, making them far friendlier than their rate implies.
Illinois exempts all retirement income, including 401(k), IRA, and pension distributions, from state income tax entirely. Its flat rate of 4.95% applies to wages and other ordinary income, but a retiree drawing purely from retirement accounts and Social Security (not taxed in Illinois) can owe $0 in Illinois state income tax despite living in a state with a meaningful income tax.
Mississippi exempts all qualified retirement plan distributions and Social Security from state income tax. Its top rate is 4.7% (declining under current law), but most retirees pay little to no state income tax there.
Pennsylvania exempts all retirement income defined as distributions from IRAs, 401(k)s, and pensions once you reach normal retirement age. Combined with a flat 3.07% rate and no Social Security tax, Pennsylvania is a genuinely strong state for retirees with moderate incomes.
Georgia offers a $65,000 per-person retirement income exclusion for residents 65 and older (as of 2024 tax law), covering most of the benchmark couple's income entirely, at a top rate of 5.49%.
For our benchmark couple: in Pennsylvania, estimated state income tax is near $0 on $80,000 of retirement income if the income is all from qualifying retirement accounts and Social Security. In Minnesota with the same income, estimated state income tax could reach $4,000 to $6,000.
The Worst States for Retirement Taxes in 2026
The highest-burden states for our benchmark retiree combine a high income tax rate with no meaningful retirement income exemptions.
California (top rate 13.3%, though our benchmark couple lands in the 9.3% bracket) taxes all retirement income including IRA and 401(k) withdrawals as ordinary income. Social Security is not taxed at the state level, which is one relative bright spot. On $50,000 of taxable retirement income (subtracting the non-taxed Social Security), estimated state income tax for our benchmark couple is roughly $3,500 to $5,000 depending on deductions.
Vermont taxes Social Security, has no broad retirement income exemptions, and carries a top marginal rate of 8.75%. Our benchmark couple could owe $4,000 to $6,000 in Vermont state income tax.
Oregon has a top rate of 9.9% with limited retirement income exemptions and taxes all IRA and 401(k) withdrawals as ordinary income. A retiree with $80,000 in income could face a $4,000 to $6,500 state tax bill depending on the income mix.
New Jersey historically taxed pension income but has expanded its pension/retirement income exclusion in recent years; as of 2025, the exclusion reaches $100,000 for joint filers with gross income below $150,000. This makes New Jersey less punishing than its 10.75% top rate suggests for many retirees, but high property taxes (average effective rate around 2.2%) remain a significant cost.
Quick comparison table for benchmark couple ($80k income: $30k SS, $25k IRA, $25k pension):
- Florida: $0 state income tax
- Pennsylvania: ~$0 (retirement exemptions)
- Illinois: ~$0 (retirement exemptions)
- Colorado: ~$1,200 (partial SS exemption, 4.4% rate)
- Minnesota: ~$4,500 to $6,000
- Oregon: ~$4,500 to $6,500
- California: ~$3,500 to $5,000 (no SS tax helps)
The Full Cost of Living Test: When Low Taxes Aren't the Whole Story
Tax savings don't exist in isolation. A retiree who moves from Massachusetts to Florida to save $4,000 in state income tax but spends $6,000 more per year on flood insurance and homeowners insurance has made a losing trade.
Property taxes: Texas, Illinois, and New Jersey all have effective property tax rates above 1.5%, which can easily exceed the income tax savings from exemptions. A $600,000 home in New Jersey at 2.2% effective rate costs $13,200 per year in property taxes. The same home in South Carolina, which has strong senior property tax relief programs, might cost $3,000 to $5,000.
Sales taxes: Tennessee and Washington have no income tax but combined state and local sales tax rates that frequently exceed 9% to 10%, one of the highest in the country. A household that spends $40,000 per year on taxable goods could pay $3,600 or more in sales tax annually.
Healthcare costs and access: Alaska scores well on income tax (zero) but healthcare costs are among the highest in the nation due to geography and market structure. Medicare covers the same services, but supplemental premiums and out-of-pocket costs for non-covered care vary considerably by market.
The right framework: calculate state income tax savings, then subtract any increase in property tax, insurance, and cost of living. If the net number is still positive after accounting for moving costs amortized over your expected retirement horizon, the move can make financial sense. Run your full numbers at Rightmont's retirement calculator to model how a state change affects your 30-year projection.
How to Use a State Tax Move as a Retirement Planning Tool
Timing a state move strategically can amplify the tax benefit. The highest-leverage window for many retirees is between ages 60 and 72, when they may be drawing down taxable accounts, doing Roth conversions, and controlling their income below key thresholds.
A Roth conversion is taxed as ordinary income in the year of conversion. Doing $50,000 in Roth conversions while living in California (9.3% bracket) costs roughly $4,650 in California state income tax. The same conversion done after establishing residency in Florida costs $0. Over five years of conversions, that's potentially $23,000 in avoided state tax on conversions alone.
Establishing domicile properly matters. Most states require you to be physically present for more than 183 days per year and to take concrete steps to sever ties with your prior state (driver's license, voter registration, updated estate documents, banking relationships). California in particular is known for aggressive residency audits. Moving is not a switch you flip; it's a legal status you establish and document.
For retirees considering a move, build the scenario in detail before committing. Model your income sources, estimate your state tax under current versus target state law, and factor in the one-time costs of moving. Then consider that state tax laws change; Illinois's retirement exemptions, for example, are embedded in the state constitution, making them more durable than exemptions created by statute, while other states' exemptions can be modified by the legislature.
Build your full retirement income plan and toggle state assumptions using Rightmont's plan editor at rightmont.com/plan to see the impact across your full projection.
Try the Calculator
Model how a state move changes your 30-year retirement outlook, including Roth conversions and RMDs, with Rightmont's free retirement calculator at https://rightmont.com/calculators/retirement-calculator.
Frequently Asked Questions
Which states have no income tax on retirement income?
Nine states have no state income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, so all retirement income including IRA withdrawals and pensions is free of state income tax. Additionally, states like Pennsylvania, Illinois, and Mississippi have state income taxes but fully exempt most or all retirement income, making them effectively tax-free for retirees drawing from 401(k)s, IRAs, and pensions.
Do all states tax Social Security benefits?
No. The majority of states do not tax Social Security benefits at all. As of 2026, roughly nine to ten states still tax Social Security to some degree, including Minnesota, Vermont, Utah, and Connecticut, though most offer income-based exemptions that phase out the tax for lower-income retirees. Federal taxation of Social Security applies in every state for higher-income households regardless of state law.
Is Florida really the best state to retire in for taxes?
Florida is one of the strongest states for retirement taxes because it has no state income tax, no estate tax, and relatively favorable homestead property tax rules, making the estimated state income tax for most retirees exactly $0. However, homeowners insurance and flood insurance costs have risen sharply in Florida, and those costs can offset income tax savings depending on where you live and the value of your home.
How much money can I save by retiring in a no-income-tax state?
A couple with $80,000 in retirement income moving from a high-tax state like Minnesota or Oregon to Florida or Pennsylvania can typically save $4,000 to $7,000 per year in state income taxes, depending on their income mix and the specific state rules. Over a 20-year retirement, that's $80,000 to $140,000 in nominal savings, before accounting for any cost-of-living differences in the new state.
Does moving to a low-tax state affect my federal taxes?
No, your federal income tax liability is determined by your income and filing status, not your state of residence. Moving to Florida or Texas saves state income tax only; your federal tax brackets, Social Security taxation thresholds, and RMD rules remain exactly the same regardless of which state you live in.
What is the best state to retire in if I have a pension?
Illinois, Pennsylvania, and Mississippi are among the strongest states for pension recipients because they exempt all or most qualified pension income from state income tax. Illinois's exemption is constitutionally protected, making it especially durable. A pensioner receiving $40,000 per year in a state that exempts pension income completely saves the full state tax that would otherwise apply to that income.
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