Kiplinger

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: Most 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 property tax: $432 in taxes per $100,000 of assessed home value

Average state and local sales tax: 9.16%

Estate tax/inheritance tax: No/No

Go to Alabama's full state tax profile

If you're a college football fan, perhaps you've thought about retiring to Alabama. But there are also non-football reasons to spend your golden years in the Yellowhammer State--like low taxes for retirees. While most people end up paying the highest income tax rate, it's not too bad at only 5%. Plus, Social Security benefits and payments from traditional pension plans (i.e., defined benefit plans) are exempt. There's no tax on income from federal government, certain Alabama state and local government, or military retirement plans, either.

Alabama also boasts the second-lowest property taxes in the the country. Plus, all homeowners age 65 or older are exempt from state property taxes. Seniors with net taxable income of $12,000 or less on their combined (taxpayer and spouse) federal income tax return are exempt from all property taxes on their principal residence.

Alaska

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Our ranking: Most tax-friendly

State income tax: None

Average property tax: $1,234 in taxes per $100,000 of assessed home value

Average sales tax (local only): 1.76%

Estate tax/inheritance tax: No/No

Go to Alaska's full state tax profile

The Last Frontier is a tax haven for retirees. Not only do Alaskans pay no state income tax, the state sends all permanent residents (who have lived there for at least one year) an annual dividend check from its oil wealth savings account. The 2019 payout is $1,606. While Alaska taxes real estate, 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.

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: Most tax-friendly

State income tax: 2.59% (on up to $21,202 of taxable income for married joint filers and up to $10,602 for all others) -- 4.54% (on more than $317,990 of taxable income for married joint filers and more than $158,996 for all others)

Average property tax: $754 in taxes per $100,000 of assessed home value

Average state and local sales tax: 8.39%

Estate tax/inheritance tax: No/No

Go to Arizona's full state tax profile

Sunshine, sunshine, sunshine -- and low taxes. The Grand Canyon State exempts Social Security benefits from state income taxes, plus up to $2,500 of income from federal and Arizona government retirement plans. Up to $3,500 of military retirement income is also tax-free in Arizona. While plenty of other states have more generous exemptions, Arizona's low income tax rates keep the net burden down.

Sales taxes are above average in the state--the average combined (state and local) rate is 8.39% (11th-highest in the nation). However, Arizona does not have an estate or inheritance tax, which makes it a more attractive retirement destination for wealthier seniors.

Arkansas

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Our ranking: Tax-friendly

State income tax: 0.9% (on up to $4,499 of taxable income) -- 6.9% (on more than $79,301)

Average property tax: $658 in taxes per $100,000 of assessed home value

Average state and local sales tax: 9.47%

Estate tax/inheritance tax: No/No

Go to Arkansas' full state tax profile

The Natural State exempts Social Security benefits and up to $6,000 of retirement income from its state income tax. While Arkansas' property taxes are among the lowest in the nation, its sales taxes--which are levied on food as well--are at the top.

A plus for veterans: All military pension income

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