Taxes in Retirement: How All 50 States Tax Retirees
Retirees relocate for lots of different reasons, from the weather to proximity to grandchildren. Moving from a pricey part of the country to one with low housing prices could also lower your expenses and make your retirement savings last longer. But as you consider the cost of living in potential retirement destinations, don't overlook the impact of state taxes on your bottom line.
Where does your state fit in? We've ranked all 50 states, plus the District of Columbia, based on how they tax retirees.
Alabama
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Our ranking: Tax-friendly
State income tax: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for all others) -- 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for all others)
Average state and local sales taxes: 9.15%
Estate tax/inheritance tax: No/No
The Yellowhammer State doesn't bring it down on retirees. Most pensions and Social Security are exempt from state income taxes. Homeowners 65 and older don't pay state property taxes, and can qualify for breaks on county and local property taxes as well. A catch: Sales taxes are high, and even apply to food.
Some counties and cities charge an "municipal occupational tax" of 0.5%-2% on income; the average levy across the state is 0.5%, according to the Tax Foundation.
Alaska
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Our ranking: Most tax-friendly
State income tax: None
Average sales tax (local only): 1.43%
Estate tax/inheritance tax: No/No
One of Kiplinger's top ten most tax-friendly states for retirees, the Last Frontier is a true tax haven for retirees. Alaskans pay no state income tax or state sales tax. In addition, the state sends all permanent residents (who have lived there for at least one year) an annual dividend check from the state's oil wealth savings account. 2018's payment was $1,600.
While real estate is taxable in some areas of Alaska, homeowners 65 and older, or surviving spouses 60 and older, are exempt from municipal taxes on the first $150,000 of the assessed value of their property.
Arizona
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Our ranking: Mixed tax picture
State income tax: 2.59% (on up to $20,690 of taxable income for married joint filers and up to $10,346 for all others) -- 4.54% (on more than $310,317 of taxable income for married joint filers and more than $155,159 for all others)
Average state and local sales taxes: 8.33%
Estate tax/inheritance tax: No/No
The Grand Canyon State is a major retirement destination, with plenty of sunshine and a low personal income tax rate that tops out at 4.54%. Social Security benefits are exempt, as is up to $2,500 of some retirement income. The shadow on this picture? Stiff sales taxes, which in many places are also levied on groceries.
Arkansas
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Our ranking: Not tax-friendly
State income tax: 0.9% (on up to $4,299 of taxable income) -- 6.9% (on more than $35,100 of taxable income, if your total income exceeds $75,000) (Brackets are 2017 values)
Average state and local sales taxes: 9.42%
Estate tax/inheritance tax: No/No
The Natural State exempts Social Security benefits and up to $6,000 of retirement income from its
One of , the Cornhusker State offers little in the way of tax breaks to retirees. Seniors may qualify for a homestead exemption on property taxes.